COVID-19 Resources

Borrower Documentation is Key [Update on PPP Certification]

Written by Van Trefethen and Adam West on April 29, 2020

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There has been a lot of publicity lately regarding large companies receiving PPP loans when they have adequate liquidity. Treasury Secretary Steven Mnuchin announced on April 28, 2020 that all loans above $2,000,000 will receive a “full review.”

According to Mnuchin, “We’re going to do a full audit of every loan over $2 million. This was a program designed for small businesses. It was not a program that was designed for public companies that had liquidity.” Mnuchin also mentioned that the SBA would review other smaller loans, as appropriate. It is important to remember that the borrowers, not the lenders, must certify that they meet the loan requirements.

This comes on the heels of the Treasury recently updating its PPP FAQ document by adding Question #31 (followed up with FAQ #37, which clarifies private companies are subject to FAQ #31).

“Question 31:  Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer:  In addition to reviewing applicable affiliation rules to determine eligibility, 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. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. 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. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.

Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 18, 2020 [IRS PPP FAQ #47] will be deemed by the SBA to have made the required certification in good faith.”

As a reminder, borrowers that receive(d) a PPP loan should contemporaneously document their economic uncertainty for their loan request (e.g., supply chain interruptions, cancelled or postponed contracts, issues related to governmental orders, accounts receivable issues, delays in production due to social distancing, etc.)

To assist in documentation, we have put together a tracking document for borrowers. Keep in mind, borrowers who previously applied for a PPP loan that can no longer certify to the “economic uncertainty” requirement are provided a safe harbor, which allows the borrower to pay back the loan by May 18, 2020.

If you have questions about PPP loans, contact your Warren Averett advisor, or request one of our team members to reach out to you.

COVID-19 Resources

This article reflects our views at the time this article was written and should be used as reference only. We recommend that you talk to your Warren Averett advisor, or another business advisor, for the most current information or for guidance specific to your organization.

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