Tag Archives: CARES act

SBA Finally Provides PPP Forgiveness Guidance

Late last week, the Small Business Administration posted interim rules and the application for employers to complete when seeking forgiveness of their Paycheck Protection Program (“PPP”) loan. This guidance, which for many businesses comes almost at the end of the 8-week covered period for spending PPP funds, provides employers with many of the answers we have been waiting for since the CARES Act was passed in March.

Of course, that means that this guidance may be too late for some of us to correct actions we already took when we first received the PPP funds. But there are some strategic decisions that you can still make if you act quickly.

The basics of the loan forgiveness have been explained in more detail and in layman’s language in the U.S. Chamber of Commerce’s Guide to PPP Loan Forgiveness, which I highly recommend that you download. But here are some basic forgiveness criteria that we have been waiting on:

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Whew! Your PPP Loan Was “Necessary”

The Small Business Administration and the Treasury Department finally have eased the minds of many Paycheck Protection Program borrowers who borrowed less than $2 million about whether the funds had to be returned because they might not have been borrowed in good faith. Nothing like having the government wait until the last minute, since borrowers who were considering returning their funds had a deadline of today (May 14) to return them (now extended to Monday, May 18).

This all started because publicly-traded chain restaurants like Shake Shack and Ruth’s Chris Steak House were excoriated when it became known by the American public that they borrowed PPP money that was promoted as helping small businesses. Facing scorn and public outcry, Treasury Secretary Stephen Mnuchin and SBA Administrator Jovita Carranza promulgated a scary and overly-broad FAQ #31, which said in part:

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.

Mnuchin promised that every business that borrowed more than $2 million would be audited, but he didn’t say that smaller borrowers would not be audited. On top of that, he also threatened criminal action against borrowers whose loans weren’t “necessary”.

He also established a safe harbor date by which companies who now believed their loans might not be absolutely “necessary” could return the money and avoid jail. That date was May 7. Then it was extended to May 14 (today). And then extended again to Monday, May 18.

These pronouncements terrified many small business owners who were now second-guessing whether they should have borrowed PPP funds at all.

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