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PPP Update on Good-Faith Certification, Loan Increases

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On May 13, 2020, the Small Business Administration (SBA) issued updated guidance on two different important Payroll Protection Program (PPP) topics.

BORROWERS’ REQUIRED GOOD-FAITH CERTIFICATION 

First, the SBA updated its PPP FAQs to address how it will review borrowers’ required good-faith certification concerning the necessity of their loan request.  Generally, to receive a PPP loan, borrowers are required to certify current economic uncertainty renders a PPP loan necessary to support ongoing operations.

Per the new guidance, the following safe harbor will apply to SBA’s review of PPP loans with respect to the required good-faith certification concerning the necessity of their loan request: any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith

The SBA determined this safe harbor is appropriate because borrowers with loans less than the $2 million threshold generally are less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.

Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance.

The SBA has previously stated all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by the SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form.

If the SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, the SBA will seek repayment of the outstanding PPP loan balance and will inform the lender the borrower is not eligible for loan forgiveness.

If the borrower repays the loan after receiving notification from the SBA, the SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.

Additional information can be found at Question 46 included in SBA’s FAQs by clicking here.  

LOAN INCREASES

The SBA also issued an Interim Final Rule (IFR) providing guidance on the ability of certain borrowers to increase the amount of their previously applied for PPP loans.

The SBA began accepting PPP loan applications April 3, 2020, but issued guidance on calculating the maximum amount of PPP loans for partnerships and seasonal employees April 14, 2020, and April 28, 2020. Some PPP loans were approved to partnerships or seasonal employers before the additional guidance was issued and, as a result, those businesses may not have received PPP loans in the maximum amount for which they are eligible.

The IFR issued May 13, 2020, authorizes all PPP lenders to increase existing PPP loans to partnerships or seasonal employers to include appropriate amounts to cover partner compensation in accordance with the interim final rule posted April 14, 2020, or to permit the seasonal employer to calculate its maximum loan amount using the alternative criterion posted April 28, 2020.

In addition, although the IFR on disbursements posted April 28, 2020, requires PPP loans to be disbursed in a single disbursement, if a PPP loan that is increased already has been disbursed, the IFR posted May 13, 2020, authorizes a lender to make an additional disbursement of the increased loan proceeds prior to submission of the initial SBA Form 1502 that includes that loan.

Additional information can be found at in the Interim Final Rule by clicking here.  

NEED HELP?

Ericksen Krentel continues to monitor the ever-changing guidance and requirements for the PPP loan application and debt forgiveness process to ensure you receive the maximum benefits. Our team is ready to help create a customized approach for your organization to effectively, and correctly, use those funds to guarantee maximum forgiveness. If you received PPP funds and need assistance in allocation and forgiveness documentation or calculation, please contact us by clicking here.

As requirements and guidance change, Ericksen Krentel professionals are available to help you. As questions or concerns arise, we ask that you contact us so we can address them as quickly as possible to ensure we continue to meet your needs. As a reminder, you can always monitor our COVID-19 Updates webpage by clicking here for the latest or monitoring our accounts on LinkedIn, Twitter or Facebook.

About Ericksen Krentel

Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.

That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.

Learn more at www.ericksenkrentel.com.

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