President Trump signed the Paycheck Protection Program and Health Care Enhancement Act ("Enhancement Act") on April 24. This legislation infuses an additional $310 billion into the Paycheck Protection Program ("PPP").
Numerous
recent headlines have shown the spotlight on the distribution of the first round of PPP funds to large prominent public and private companies. Many have questioned the propriety of the eligibility requirements.
As you may remember,
the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") provided a $2.2 trillion stimulus
package that allocated funding to small businesses through new and enhanced loan programs administered by the Small Business Administration ("SBA"). The PPP was one such program designed specifically to provide eligible small businesses immediate relief, if they believe that "curr
ent economic uncertainty"
of the COVID-19 pandemic makes such a loan for their business "
necessary to support their ongoing
operations,"
and
were willing to certify to the lender to that affect.
PPP offers funds covering up to eight weeks of payroll, the program's purpose is to reduce the growth of unemployment, help small businesses retain employees, and enable them to rebound quickly once the pandemic is under control.
Unfortunately, the initial guidance promulgated by the SBA did not provide any definition or specifics regarding the nature or extent of the required impact to operations or the "
current economic uncertainty"
that would make the loan request "
necessary to support ongoing operations."
In addition, t
he PPP loan has a forgiveness component if a business meets certain conditions.
On April 23, the SBA updated its Frequently Asked Questions Document to add FAQ 31. Any business that received a PPP loan prior to the issuance of this new guidance and who now believes that they do NOT demonstrate the necessity for the loan, can repay the loan in full by May 7, 2020. Any business that does so will be deemed by the SBA to have made the required good faith certification on their PPP loan application.
We certainly understand that there has been a justifiable rush for eligible small businesses to expedite processing of these loans and you may have already submitted or be primed to submit your PPP application, but we do want to caution you as to the potential risks of receiving these funds, as these loans will be subject to regulatory and public scrutiny. Loan recipients will not remain anonymous as EINs will be made public. We anticipate heightened government scrutiny will be forthcoming to investigate potential fraud and abuse. Businesses who have received PPP loans and are later found to have not qualified under the eligibility rules and/or businesses who do not use the funding in accordance with the terms of the program, could be subject to significant legal or regulatory consequences.
Given the revised guidance issued by the SBA and the pending May 7, 2020 deadline for returning loan proceeds, we strongly encourage your organization's management and board of directors to carefully review your company's financial situation. Specifically, consider whether your circumstances fall within the spirit and intent of this economic relief program. It is critical that you maintain complete and accurate documentation to support your eligibility for such funding, the specific use of these funds, as well as your qualifications for forgiveness under the terms of the program (the specific guidelines for forgiveness have yet to be clarified). This documentation will greatly minimize your potential exposure to any challenges related to your participation in this loan program, as m
any of th
e factors impacting your qualification for these loans are organization specific.
