After a few big corporate chains garnered unwanted attention for receiving loans through the federal government Payroll Protection Program, U.S. Treasury Secretary Steven T. Mnuchin and SBA Administrator Jovita Carranza made a joint statement that the U.S. Treasury Department will “review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.”
With additional regulatory guidance on this implementation yet to be announced, many businesses are raising concerns about their justification and/or risk for audit.
If your business is unable to provide rationale and meet the certification criteria, there is a safe harbor period until Thursday that allows borrowers to repay the loan without repercussion.
“While most borrowers will easily be able to provide proper rationale for a PPP loan, it is still important for all businesses to both reevaluate and document why their PPP loan was necessary,” says Brian Kuehl, director of government and public affairs at K·Coe Isom. “We recommend that every PPP loan applicant takes the time to gather written documentation to show why they applied, and to demonstrate that the loan was needed for hardship due to the impact of COVID-19.”
Every PPP borrower should answer—and document responses—to these questions.
Was I eligible to receive a PPP loan?
The PPP program requires all borrowers to certify that “current economic uncertainty makes this PPP loan request necessary to support the ongoing operations of the applicant.”
You should be able to show that the loans helped to cover immediate losses, business disruption, avoid employee layoffs, avert uncertainty around consumers or suppliers, etc.
Should I keep the PPP loan?
For borrowers who took the PPP loan as a hedge against economic fallout, evaluate how your business has been affected, do you need to keep the loan and, if so, for how long?
Remember that there is no pre-payment penalty if you elect to pay your loan back early, but it is also OK to hold onto the loan for up to two years, assuming you were eligible to participate.
If I keep the loan, should I convert it into a forgivable loan?
Loan amounts can be forgiven if they are used for payroll costs, rent, mortgage interest, and other specified expenses during the eight weeks following receipt.
While we await clarity on whether the SBA will issue new guidance for loan forgiveness, including financial hardship criteria, we do know that borrowers are not required to ask for forgiveness for the entire loan.
Wholly apart from the forgiveness criteria that the SBA may release, you should evaluate whether it is necessary for you to seek forgiveness on all or part of the loan, or whether you would rather keep the loan as a loan.
Each business is different, but it is beneficial for all businesses to thoroughly evaluate and document its reasons for applying for the PPP loan and for asking for loan forgiveness.
If you have questions about the Paycheck Protection Program, member companies are entitled to a 60-minute, confidential, no-cost consultation with KCoe Isom, provided as a service of Association membership.
Contact Justin Mentele at email@example.com or (463) 209-7606.