Safe Harbor Certification For Small PPP Loans, But Document Use Carefully
When applying for the Paycheck Protection Program, every applicant had to certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” No one knew exactly what this meant, therefore, our suggestion was to make a good faith effort to thoroughly document your “need” regarding this certification.
Recently, the U.S. Treasury and SBA issued guidance concerning this topic. Current guidance, published May 13, 2020, includes a safe harbor for the certification that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” This safe harbor applies to any borrower, together with its affiliates, that received PPP loans with an original principal amount of less than $2 million. According to the SBA, the borrower under this safe harbor “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”
Read the full guidance here, page 16, Question #46 and #47.
With most borrowers under the $2 million threshold, this certainly clears up the confusion with regard to this good faith certification requirement. Nevertheless, it is still worthwhile to thoroughly document why you requested the PPP funds, as we outlined in the email yesterday, to support your loan forgiveness application.
As the SBA stated in previous guidance, loans greater than $2 million will be the focus of “review by SBA for compliance with program requirements.”
Below are some suggestions worthy of consideration for these larger loans.
- How has COVID-19 impacted your business activity?
- What uncertainties and concerns do you face because of COVID-19 and how might they impact your business?
- Consider the strength of your balance sheet and cash position.
- Assess other forms of capital and liquidity that are or could have been available.
- Consider the impact of COVID-19 on your employees and the need for PPP funds to support your workforce.
If you have questions about your economic need, you should consider returning the funds. In a new FAQ, #47, issued May 13, 2020, the SBA has also extended the safe harbor repayment deadline. “SBA is extending the repayment date for this safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46. 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.”
For those who feel comfortable certifying their economic need and uncertainty, thoroughly document that need, if you have not already.
The Treasury and the SBA have issued a stern warning here, and failure to properly substantiate your need could bring criminal charges from the federal government. To what extent will they be able to overview and enforce any noncompliance is unknown, but nevertheless the federal government will be acting against those who falsely certify their need.
These are uneasy times, and the criteria are subjective. Whatever you decide to do, act now and either return/repay the funds or thoroughly document your need. When and if new guidance is issued, look to Sykes & Company, P.A. to keep you and your pharmacy informed.
We are continuing to monitor these issues, so stay informed through our COVID-19 Advisory Updates.
If you have specific questions about our updates, just go to ASKSYKES, We are ready to find your answers.