{"id":3065,"date":"2023-05-26T17:16:49","date_gmt":"2023-05-26T21:16:49","guid":{"rendered":"http:\/\/blog.tarleyrobinson.com\/?p=3065"},"modified":"2023-05-26T17:16:49","modified_gmt":"2023-05-26T21:16:49","slug":"ppp-loan-update-may-1-2020-certification-of-your-need-for-a-ppp-loan","status":"publish","type":"post","link":"https:\/\/blog.tarleyrobinson.com\/?p=3065","title":{"rendered":"PPP Loan Update May 1, 2020 \u2013 Certification of your need for a PPP Loan"},"content":{"rendered":"\n

Everybody who applies for a PPP loan must\ncertify under oath that \u201ccurrent economic uncertainty makes this loan request\nnecessary to support the ongoing operations of the Applicant.” Undoubtedly,\nall of our local businesses who have applied and who made that certification\nthought there was NO DOUBT that the economic uncertainty was obvious and\nevident. <\/p>\n\n\n\n

But then it came to light that many publicly traded companies<\/a>\nand larger private companies applied for and received PPP loans. Although those\ncompanies technically qualified for the PPP loan, there is no doubt that the\nCARES Act was not intended for entities like Shake\nShack<\/a> and the Los\nAngeles Lakers<\/a>. <\/p>\n\n\n\n

So to address these issues, the SBA offered\nmore pointed guidance to dissuade these types of companies from applying for\nthe loans. But the ambiguous guidance proposed in the interim rule applies to\neverybody who applies for a PPP loan, including a sole proprietor. In this post,\nI hope to provide you some guidance to help you \u201cpaper your file\u201d supporting certification\nof need, which you may need when you apply for loan forgiveness, 8 weeks after\nreceiving your loan proceeds.<\/p>\n\n\n\n\n\n\n\n

The new guidance from the SBA can keep a\nsmall business owner up at night: \u201cBorrowers\nmust make this certification in good faith, taking into account their current\nbusiness activity and their ability to access other sources of liquidity\nsufficient to support their ongoing operations in a manner that is not\nsignificantly detrimental to the business.\u201d WHAT DOES THAT MEAN???<\/p>\n\n\n\n

The short answer\nis, \u201cnobody knows.\u201d Is your credit line another \u201csource of liquidity?\u201d How\nabout your savings account? Do you have to spend every dollar you have before\nyou apply?\u201d I cannot give you any clarity or certainty until the SBA issues\nfurther guidance, but here are some suggestions.<\/p>\n\n\n\n

First, an applicant for a regular SBA loan is\neligible if it is unable to obtain credit on reasonable terms from non-federal,\nnon-state, and non-local government sources. Generally speaking, the SBA\u2019s\n\u201ccredit elsewhere\u201d test takes into account both the liquid assets of the\nbusiness and its owners, and whether credit could be obtained elsewhere on\nreasonable terms and conditions. But the CARES Act expressly removes that\nrequirement. Therefore, the \u201ccredit elsewhere\u201d test is not the standard for PPP\neligibility. <\/p>\n\n\n\n

Second, the CARES Act requires that PPP\nborrowers certify in good faith \u201cthat the uncertainty of current economic\nconditions makes necessary the loan request to support the ongoing operations\nof the eligible recipient.\u201d The SBA\u2019s FAQ explains that applicants making the\nPPP loan certification should \u201ctak[e] into account their current business\nactivity and their ability to access other sources of liquidity sufficient to\nsupport their ongoing operations in a manner that is not significantly\ndetrimental to the business.\u201d<\/p>\n\n\n\n

So until we get further guidance, where it\nstands now, an applicant could have other sources of liquidity, but if the\napplicant is unable to access those sources without significantly damaging the\nbusiness, the certification is valid.<\/p>\n\n\n\n

As of now, there is no clear and certain test\nfor determining the necessity for your PPP loan. Those of us analyzing this\nissue have no doubt the undeserving larger public companies and private\ncompanies with ready access to liquid assets created this problem. But the\nguidance applies to all of us, unfortunately.<\/p>\n\n\n\n

Here\u2019s all we can suggest at this point:\ndocument your file supporting your good faith decision to apply for the loan\nand receive the proceeds because the funds are necessary to support ongoing\noperations in light of other access to capital. Here are some suggested bullet\npoints for your \u201cmemo to the file\u201d:<\/p>\n\n\n\n