ALERT: PPP Borrowers Can Return Funds by May 7 Without Penalty

May 7th PPP Borrowers Deadline

An open letter to our Clients and Friends:

During the last week, the Paycheck Protection Program (PPP) has been the focus of national media reports, the Secretary of the Treasury, the U.S. Small Business Administration (SBA) and even the President of the United States.

This alert summarizes the “good faith” certifications required by the PPP loan program and addresses and explains recent statements and guidance made and issued by the Secretary of the Treasury and the SBA. This includes the SBA’s supplemental interim final rule to support its supplemental guidance issued on April 23, 2020.

If you received, applied for, or are considering applying for a Paycheck Protection Program (PPP) loan, you may have some concerns about recent news. Specifically, you may be concerned about PPP eligibility, forgiveness, and government scrutiny. We want to help you stay updated on these PPP developments and provide a couple suggestions.

As background, the PPP loan application includes two critical certifications that the authorized representative of the loan applicant must make. Specifically, the representative of the applicant is required to certify that:

As the language quoted in the second bullet point above indicates, the risk of making an inaccurate certification includes potential criminal liability for fraud.

As PPP funding ran short and public opinion shifted, there have been important new developments:

Key area of enforcement: Does the business need the loan?

We know this is an important issue and many of our clients are looking for guidance and reassurance.

Unfortunately, nowhere does the current guidance contain the level of detail necessary to address these issues with any degree of certainty. This is incredibly frustrating, as borrowers hear threats of SBA audits, fraud charges, and bad publicity, but they lack clear rules to guide decisions.

So, what should your organization do? While there is much uncertainty around how these requirements will be enforced, we know one critical piece for all borrowers is documentation of your rationale for the loan application certifications. The newly issued guidance indicates the authorized representative of the borrower should be able to assert, in good faith, that the PPP loan was needed after considering at least these factors:

  1. The borrower’s current activity;
  2. The borrower’s access to other sources of liquidity sufficient to support its ongoing operations; and
  3. An evaluation of whether these other options, if any, could be implemented in a way that was not significantly detrimental to the borrower’s business.

If you are audited by the SBA, it will likely be very important to establish that you considered each of those factors in good faith. Beyond that, if you have concerns about the loan application certifications and your eligibility to receive a PPP loan, you may want to involve an attorney who can help you evaluate your options and the corresponding legal implications.

Do not delay taking action, as the May 7, 2020 date to make a decision as to whether to keep or return the funds will be here before you know it.

Whether it is the requirements of the PPP or another topic, we would be pleased to speak with you. We also invite you to leverage our COVID-19 Resource Center. As always, we appreciate the opportunity to serve you and wish you the best during this challenging time.

Note: All information contained herein is effective as of the date of this letter. Guidance is changing quickly and may have been altered since the date of this letter.

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