PPP Update

//PPP Update

PPP Update

On May 6, 2020, the Treasury announced that the safe harbor period to return Paycheck Protection Program loans/withdraw applications that do not meet the economic need certification has been extended from May 7, 2020 to May 14, 2020.

 

Here is the relevant Q and A from the SBA updated FAQs:

    1. Question: FAQ #31 reminded borrowers to review carefully the required certification on the Borrower Application Form that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA guidance and regulations provide that any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. Is it possible for a borrower to obtain an extension of the May 7, 2020 repayment date?

Answer: SBA is extending the repayment date for this safe harbor to May 14, 2020. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor. SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.

 

On May 5, 2020, Lori Yarvis participated in a town meeting style call earlier in the week with Mark Hayward, an SBA District Director, and Wendell Davis, Regional Administrator for New England.  Here are the highlights:

When asked for guidance about loan forgiveness, the SBA representatives stated that we’re still waiting for guidance but that the 75%/25% split was an absolute. 

The SBA representatives were clear that businesses need to use the funds for eligible costs, and the more businesses try to stretch the rules regarding eligible costs, the more they are taking a risk.  They were also clear that if a business is acting in good faith in applying for a PPP loan and in attempting to use the funds for eligible expenses, the worst case scenario is that if a portion of the loan is not forgiven, then it will convert to a 1% interest loan, no collateral, no personal guarantees.  They said, however, that if a business knowingly does not apply the funds to eligible costs, uses them for improper purposes, or applied for funds when it was clear that the business was well capitalized, had sufficient cash on hand and access to capital, i.e. could not legitimately make the certification on the PPP Borrower Application that “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”, then these businesses would be looked at harshly. 

The SBA representatives stated that simply having an available credit line would not be a criterion making a business ineligible for a loan.  They said businesses should not be required to take on more debt than they can pay back given decreases in revenue as a result of reduced operations. 

The SBA representatives said borrower businesses should keep careful records substantiating the use of loan proceeds and should exercise caution.  For example, they recommended that businesses should continue the practices they have undertaken in the past regarding expenses, so that during the 8 week covered period in which payroll and other eligible expenses will be scrutinized for loan forgiveness purposes, there are not any expenses out of the ordinary course designed to manipulate either payroll or other eligible expenses merely for purposes of qualifying for 100% forgiveness.

 

We hope this is helpful to you while we await additional guidance on loan forgiveness from the Treasury. Should you have any questions, please don’t hesitate to reach out to your Archstone attorney.

 

 

 

 

 

 

 

2020-05-08T13:02:02-04:00May 8th, 2020|News|