Less than one day before the May 14 extended deadline that the U.S. Treasury set for returning loan funds without penalty, it issued additional guidance. The U.S. Treasury had previously indicated that it would provide further guidance to borrowers utilizing the payroll protection loan program for evaluating whether required certification that the loan was “necessary due to current economic uncertainty” was a proper certification made in good faith. There was a great deal of talk about returning loans and talk of fraud charges if certifications were improper, creating a great deal of anxiety about just how bad off a business needed to be to make the certification in good faith. The U.S. Treasury said that borrowers who immediately repaid the loan would not be subject to any such scrutiny, and promised additional guidance that was supposed to help alleviate the fears of small businesses who were left wondering just how bad business needed to be to qualify for a loan in the Treasury’s eyes.
That additional guidance was issued (May 13th) – it is very helpful for some small businesses (the smaller ones at that) but leaves other larger small businesses still wondering about the for determination of whether their loan certification relating to the necessity of the loan was proper. The guidance states that small businesses who received a loan of less than $2 million basically receive a safe harbor presumption that their loan was necessary and that particular certification was made in good faith – thus smaller loan recipients may rest a little easier that they won’t automatically be the focus of a wide hunt by the government to charge business owners with fraud based on the notion that their need wasn’t sufficient based on standards never made clear. However, businesses with original loan amounts in excess of $2 million are stuck with the very nebulous standards previously published – such as whether they had access to other sources of capital that wouldn’t cause great harm to the business. So the larger loan recipients are unfortunately still stuck trying to analyze the vague available guidance to determine if they should qualify. However on the up side, larger loan recipients have also received some grace in the newest guidance of Frequently asked question #46. The guidance states that if a borrower, regardless of size, receives notification that their loan certification was improper and subsequently repays the loan, the SBA will not pursue other enforcement or referrals to other agencies (presumably this means they will not attempt to impose any penalties). This should allow even larger borrowers who have made their certifications in good faith to rest a little easier. This newest guidance seems to be an admission by SBA that there has been no clear guidance issued to date that would allow a borrower to objectively determine whether their certification concerning the necessity of the loan met the CARES Act and SBA standards.
Please note that the safe harbor relates to “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” If other borrower certifications are found to be false, SBA may still pursue other enforcement options, including monetary and criminal penalties. Loan Forgiveness details and guidelines are still to come, so keep an eye out for those in the future, but we recommend borrowers start accumulating the loan forgiveness documentation now.
Even though our offices are still closed to clients and visitors, we are always a phone call or email away. Please reach out to your Pugh CPAs advisor if you have any questions or concerns regarding your PPP loan.