UPDATED — Michael Bosma: So, you received your PPP loan; should you return it? (Voices)
Covering Your Assets
An important point to remember: U.S. Treasury Secretary Steven Mnuchin says the law is clear that borrowers — not banks — “face criminal liability for making certifications that weren’t true,” according to an April 28 Wall Street Journal report.
UPDATE — 10 a.m. Wednesday, May 13:
On the morning of May 13, the U.S. Treasury updated its growing list of FAQs.
Of particular note is FAQ 46, which states, “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.”
Therefore, business owners that meet this criteria should rest easy! Go here to find full details; scroll to the bottom for FAQ 46.
The original column, filed May 7 and published May 12, is below.
RENO, Nev. — If you received, applied for or are considering applying for a Paycheck Protection Program (PPP) loan, you may have some concerns about recent news. Specifically, you may be concerned about PPP eligibility, forgiveness and government scrutiny.
As background, the PPP loan application includes two critical certifications that the authorized representative of the loan applicant must make. Specifically, the representative of the applicant is required to certify that:
- “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
- “The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.”
As the language quoted in the second bullet point above indicates — from the PPP Loan Application, p. 2 (emphasis added) — the risk of making an inaccurate certification includes potential criminal liability for fraud.
As PPP funding ran short and public opinion shifted, there have been important new developments:
- On April 23, Treasury issued FAQ #31, which states, in relevant part: “All borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. … Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’ Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” FAQ 31 further states, “Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 [now May 14 per FAQ #43 below] will be deemed by SBA to have made the required certification in good faith.”
- On April 28, Treasury Secretary Steven Mnuchin announced the SBA “will review all loans in excess of $2 million, in addition to other loans as appropriate.”
- On April 28, Treasury issued FAQ #37, which makes it clear that the above-quoted statements in FAQ #31 apply to all businesses.
- On May 5, the Treasury issued FAQ #43, extending the repayment date for the safe harbor discussed in FAQ #31 from May 7, 2020 to May 14, 2020. Borrowers do not need to apply for the extension. The SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.
So … now what?
We know this is an important issue and many of our clients are looking for guidance and reassurance.
Unfortunately, nowhere does the current guidance contain the level of detail necessary to address these issues with any degree of certainty. This is incredibly frustrating, as borrowers hear threats of SBA audits, fraud charges and bad publicity, but they lack clear rules to guide decisions.
So what should your organization do? While there is much uncertainty around how these requirements will be enforced, we know one critical piece for all borrowers is documentation of your rationale for the loan application certifications.
The newly issued guidance indicates the authorized representative of the borrower should be able to assert, in good faith, that the PPP loan was needed after considering at least these factors: (1) the borrower’s current activity; (2) the borrower’s access to other sources of liquidity sufficient to support its ongoing operations; and (3) an evaluation of whether these other options, if any, could be implemented in a way that was not significantly detrimental to the borrower’s business.
If you are audited by SBA, it will likely be very important to establish that you considered each of those factors in good faith. Beyond that, if you have concerns about the loan application certifications and your eligibility to receive a PPP loan, you may want to involve an attorney who can help you evaluate your options and the corresponding legal implications.
Don’t delay taking action, as the May 14, 2020, date to make a decision as to whether to keep or return the funds will be here before you know it.
All information contained herein is effective as of the date of this writing, May 7. Guidance is changing quickly and may be altered after this article is published. Rich Tower, who is a member of CLA’s COVID-19 Task Force, and CLA’s National Tax Office assisted with this article.
Michael Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at email@example.com.
Heather Ashbridge, who started with Nevada State Development Corporation in 2008, previously served in several roles with the organization, including assistant vice president and loan officer. She is based in NSDC’s Reno office.