IS YOUR PPP LOAN “NECESSARY”?

New guidance has been issued from the SBA regarding the qualifications of the Paycheck Protection Program Loan. This new guidance clarifies the “current economic uncertainty” requirement that a borrower needs to meet in order to apply for the loan. Whether you have already received PPP Loan funds, or expect to, it is important to understand this updated information.

From the SBA:

“Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that ‘current 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.”

Based on this guidance, if you believe that the PPP Loan is necessary to support the operations of your business, and that you do not have alternate sources of liquidity, make sure you document why. You should keep a file with your application, business records you used in preparing your application, communication with your lender, and any other documents used to determine your eligibility. At this time the SBA hasn’t provided clear answers as to what is “necessary”, so it is important to have as much documentation as possible. While we don’t know what the forgiveness processes will look like for the PPP Loan, you will likely need these documents to apply.

If you have previously certified your loan eligibility on your PPP Loan application and now believe that your business is not eligible for the loan, you should consider repaying the funds or withdrawing your application. If you knowingly made a false statement to obtain your loan, it is punishable under the law with steep fines and imprisonment. The SBA has extended the deadline to repay the loan from May 7, 2020 to May 14, 2020 which gives you some time to review your situation.