Paycheck Protection Program Certification Review

Paycheck Protection Program Certification Review Needed before May 18, 2020 – UPDATED 5/14/2020

The Small Business Administration (SBA) has determined that some businesses applied for the Paycheck Protection Program (PPP) loan when they may not have certified in good faith the economic need for the loan. This would include considerations of access to other sources of liquidity (such as cash and investments), to support ongoing operations at the time of applying for the loan. All small businesses had to make good faith certifications that the uncertainty of current economic conditions made the loan request necessary to support their ongoing operations. 

On April 23, 2020 the SBA provided guidance (there was none prior) stating that business must consider their current business activity and their ability to access other sources of liquidity available to support ongoing operations, so it is not significantly detrimental to the business. Any business that applied for a PPP loan before April 23, 2020 can repay the loan by May 18, 2020 and they will be deemed to have made the required certification in good faith. All businesses should document the basis for their certification of need.

A joint Treasury and SBA statement indicates many businesses returned their PPP loans after the SBA guidance was issued on the business’s certification of need. SBA has announced it will review each PPP loan of more than $2 million, in addition to other loans as appropriate, after the lender submits the business owner’s application for loan forgiveness.

Please contact your lender if your evaluation of financial need doesn’t meet the conditions for the PPP loan and the funds need to be returned by May 7, 2020 to avoid penalties or other enforcement actions.

On another note, IRS has issued guidance indicating the expenses paid with a PPP loan are not deductible if that portion of the loan has been forgiven. It appears this was not the intent of Congress but there is another code section that provides that expenses incurred in connection with tax exempt income are not deductible. There is an inconsistency in the treatment for a self-employed individual’s payment of their draw. The self-employed individuals draw is not deductible under general tax law so they have the advantage to have the loan forgiven and not have to reduce expenses by their draw.

Questions? Please contact us at 401-831-0200.

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