The Small Business Administration, in consultation with the Department of Treasury, recently issued updated frequently asked questions, or FAQs, for the Paycheck Protection Program (PPP).
The FAQs can be found here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf
One answer that jumps out, in particular, is FAQ #46, which provides additional guidance in response to the question “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”
This relates to the PPP borrower certification (a checkbox on the application) that “current economic uncertainty makes this loan request necessary to support ongoing operations,” referred to as the “Necessity Certification.” When applying for a PPP loan, you’re required to certify that the loan was necessary.
FAQ #46 specifically states that “Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” In other words, if the loan is less than $2 million, SBA is going to assume you needed it for payroll and other allowed expenses.
The SBA created this “safe harbor” for the following express reasons: borrowers below the threshold likely do not have access to adequate sources of liquidity in the current economic environment; to promote economic certainty in the pursuit of retaining and rehiring of employees; and to conserve the SBA’s finite audit resources to focus on larger loans.
This is a non-exhaustive list, but here are some best practices to help you stay in compliance with respect to PPP funds:
- Document the economic necessity of the PPP loan funds;
- Evaluate and document the financial and non-financial impacts of COVID-19 on your organization;
- Appraise the realistic availability of other sources of funding; and,
- Document management oversight and use of the PPP loan funds.
If you have any questions regarding the foregoing, please do not hesitate to contact us or give us a call at 601-487-4550.