New SBA Guidance on Payment Protection Program

Loan Forgiveness

On April 24, President Trump signed into law new legislation that provided an additional $310 billion in funding for the Paycheck Protection Program (PPP). Now effective, banks started accepting applications for the program. While the additional funding may bring hope to some businesses who were left out of the first tranche of PPP funds, guidance released by the Small Business Administration (SBA) and Department of Treasury (Treasury) on April 23 is causing some borrowers to second guess their involvement in the massive program.

Borrower Beware

The new “guidance” by the SBA creates more questions than answers. It fails to provide any certainty to PPP applicants or recipients on the meaning of the required certification, how to determine whether a business has access to “other sources of liquidity” and what it means to take those other sources “into account”, what types of liquidity are “detrimental” to a business, and what level of loss of business activity or economic injury is sufficient to support the certification in good faith.

PPP borrowers should carefully consider their actual need for these funds, whether available bank financing might provide adequate liquidity, and whether the new guidance might lead them to pay back the loan without seeking forgiveness. While the original guidance supplied for the program indicated that these loans would be available to a wide swathe of businesses, recent statements by SBA and Treasury indicate there are strings attached.

In addition, Treasury Secretary Steven Mnuchin said on Tuesday April 28th that the government will audit any company taking out more than $2 million from the small business loan program.

Borrowers must also certify they understand that knowingly making a false statement to obtain a guaranteed loan from the SBA is punishable, depending on the circumstances, by imprisonment of up to thirty years and/or a fine of up to $1,000,000.

The Certification

One of the many issues puzzling applicants is the following certification required on the Paycheck Protection Program (PPP) application: Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant. Neither SBA nor Treasury provided any interpretive guidance on this certification after the CARES Act was signed into law on March 27. That changed on April 23, nearly two weeks after banks began accepting applications for the program including this certification.

FAQ #31

The new guidance comes in the form of a new Frequently Asked Question on the Treasury website that introduces substantial uncertainty to the question of whether a business that is otherwise eligible for the program based on the business size standards should apply. The full text of the FAQ is provided here:

31. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, considering their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.


As mentioned above, PPP applicants are required to certify that current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant. The CARES Act also suspended the customary SBA requirement that borrowers are unable to obtain credit elsewhere. Given the unprecedented nature of the COVID-19 pandemic, and the fact that SBA offered no guidance whatsoever in interpreting this certification, a significant number of small businesses likely felt they could make this certification in good faith.

Safe Harbor

In what may be seen as an acknowledgment of this, the FAQ states that any borrower that applied for a PPP loan prior to April 23 and repays the loan in full by May 7 will be deemed by SBA to have made the certification in good faith. This might provide some solace to a business that has already applied for (or received) a PPP loan, to the extent that business is concerned about its ability to make the certification in good faith. But this safe harbor will not benefit a business that has not yet submitted its application.

We recommend talking to your bank lender whether this is something that needs to be addressed based on your situation and economic uncertainty. We are proactively monitoring any forthcoming regulations and guidance.

AICPA Recommendations: PPP Application and Forgiveness Process

We Help You Get to Your Next Level™

Get in touch today and find out how we can help you meet your objectives.

Call Us