Paycheck Protection Program Loan Certification Updates

As we continue to monitor the progress of the PPP Loan Program from a variety of angles, there has been much publicity recently about whether large companies, who have sufficient access to liquidity, qualify for PPP loans.

The U.S. Treasury Department, in its Question and Answer PPP FAQ, added Question 31which asks about “access to liquidity,” which was answered that borrowers must assess their economic need for a PPP loan at the time of the loan application. The borrower needs to certify that “current economic uncertainty makes the loan request necessary to support the ongoing operations of the Applicant.”  Borrowers must assess their liquidity to support the business operations in a manner that is not significantly detrimental to the business.

Specifically, the Secretary of the Treasury asserts that it is unlikely that a public company with substantial market value and access to the capital markets would be able to make the certification in good faith. Any borrower may repay the loan in full by May 7, 2020, as a safe harbor for this good faith certification. If you believe there is any question as to whether or not your business should consider repaying the loan, we recommend you connect with your BMF Advisor, as well as potentially including legal counsel to help you assess the potential impact to your business and to the individuals who signed off on the certification.

On April 28, 2020, the Treasury added Question 37 to the PPP FAQ on whether closely held businesses with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan. The response is “see question 31.”

What we know is that with all the publicity around this program and its rollout, the issues around fraud, government waste, government bailout issues (TARP program), etc., the potential for auditing of these funds will be at an elevated level.

Areas of the Audit

The main areas for the audit will be:

  1. The necessity of the loan
  2. Size eligibility
  3. Amount of loan requested
  4. Use of loan proceeds

Since the banks rely on the representation of the borrower, the burden of proof for these areas will fall on the borrower. It will be up to the borrower to prove why the business needs the loan.

Supporting Documentation

The business should prepare the following in preparation for this request:

  • An internal memo to document why it needed the loan. This memo should address its available cash reserves, its access to liquidity through capital markets and/or normal working capital borrowing arrangements
  • Prepare cash flow projections as well as operating budgets and forecasts. The financial forecasts should be run at various revenue levels, including impact on various highly compensated individuals whose salaries were excluded from PPP calculation and increased operating costs that will be incurred to deal with the virus on an ongoing basis.
  • Staffing schedules/forecasts, both on a pre- and post-COVID-19 basis
  • Document the risks and threats to the business going forward in terms of the supply chain, impact of customers on sales and payment ability and impact of a possible second wave of the virus on the company
  • Address business plans and conditions that have changed because of the economic upheaval
  • Other business expansion/capital improvement plans that were and still are being considered

The CARES Act created the Pandemic Response Accountability Committee (PRAC) to monitor compliance with the program and created a special Inspector General for Pandemic Recovery with $25 million in funding. It also provided an additional $25 million for the other inspector generals to help with enforcement of the CARES Act provision. The CARES Act established the COVID-19 Congressional Oversight Commission to oversee all these programs.

Additionally, there are other monitoring authorities such as the Government Accountability Office (GAO), the FBI and the IRS. The CARES Act specifically refers to the False Claims Act which allows the Federal Government and private individuals to take action against those that defraud federal programs and allow damages that are treble to the amount of the government loss due to the false claim.

The rules continue to change including comments we are hearing regarding possible legislation that will be considered. Senator Ron Johnson has indicated he is working on legislation that would include language that if 2020 taxable income is higher than 2019, then no portion of the loan is available for forgiveness, as well as a gross receipts test that would require gross receipts to be 60% or less of the prior year to get total forgiveness. There would be a sliding scale section between 60%-90%.

This is neither passed legislation nor included in a legislative bill yet, but rather an indication of possible outcomes going forward.

As we know, the Government has the ability to change the rules in the middle of the game, so monitoring continuing developments is crucial.

And then yesterday, April 28th, U.S. Treasury Secretary Mnuchin stated that all loan forgiveness in excess of $2.0 million dollars will be subject to a “full audit.”  We have heard that national accounting firms are being hired to perform these audits.

If you’ve taken out a loan, we are prepared to help you. We can create the proper documentation and reports to help support the loan amount that was prudent for you to properly keep your business moving forward.

Our BMF Advisors stand ready to help with questions on PPP loans, disaster and business interruption loans or other answers you need to keep your business moving forward.Visit our COVID-19 Resource Center for additional information and resources for you and your business.

About the Authors

Dale A. Ruther
Dale A. Ruther
Partner Emeritus,
James E. Merklin
James E. Merklin
Partner, Assurance and Advisory


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