Since passing the CARES Act in late March, the SBA has tried to give some clarity to the popular Paycheck Protection Program through a series of Interim Final Rules & Frequently Asked Questions (FAQs). As of April 29
th
, they have released 4 separate Interim Final Rules and 12 different FAQ notices with a total of 39 questions and answers. Two of the FAQs (see questions 31 & 37 of the PPP Loan FAQ document linked below) have created a bit of a stir regarding whether companies really qualify to have taken the loans & whether they need to be paid back right away.
In addressing this concern, the SBA gives an example of a public company with substantial market value and access to capital markets, stating that they should be prepared to demonstrate to the SBA, upon request, the basis for why the loan was necessary. They also address privately held businesses saying that they are subject to the same rules. Businesses who have borrowed funds are being asked to make sure that the loan really was necessary (due to the economic uncertainty) to support the businesses’ ongoing operations. You’ll recall that when completing the application, you were asked to certify that the “current economic uncertainty makes this loan necessary to support the ongoing operations of the applicant.” Assuming that was the case at the time you completed your application, there isn’t a need to repay the funds immediately; but, we are recommending that you put together some analysis that substantiates your reasoning as to why the funds were needed.
Any businesses who determine that they would not be able to substantiate valid reasoning that the funds were necessary to support the ongoing operations of the business have until May 7
th
to repay the loan and they will be deemed by the SBA to have made the required certification in good faith.
Please reach out to your CPA with any questions that you may have or let them know if you would like assistance in providing analysis to substantiate why the funds were necessary.
We have attached the most recent summary (as of 4/29) of the FAQs that have been issued, including the questions we referred to above. In addition, we’ve included an example of what some of the banks are sending out to businesses who have applied for the PPP loan:
As we mentioned above, please call us if you have any questions or if we can be of help in any way.
Thank you,
The Team at Rader & Rader
