Late on May 5, 2020, the Small Business Administration (“SBA”), in consultation with the Department of the Treasury, updated its FAQ’s regarding the Paycheck Protection Program (“PPP”) with the inclusion of FAQ #43 and #44.
RCRI members may recall RCRI’s Timely Topics presentation of May 1, 2020 which included information regarding the May 7, 2020 safe harbor. FAQ #31 reminds borrowers to review carefully the required certification on the Borrower Application Form that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The SBA guidance and regulations provide that, upon a review by a borrower who successfully applied for a PPP loan prior to April 24, 2020 and subsequently repays the loan in full by May 7, 2020 after having conducted such a review in determining the necessity of the loan, will be deemed by SBA to have made the required certification for the loan in good faith.
In the updated May 5, 2020 FAQ’s, the SBA at FAQ #43 extended the repayment date for this safe harbor to May 14, 2020. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor. SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.
As the May 1, 2020 Timely Topics presentation shared, under the CARES Act, all eligible recipients of a PPP loan must “make a good faith certification: that the “[c]urrent economic uncertainty makes [the] loan request necessary to support the ongoing operations of the Applicant.” As such, the SBA has the opportunity to review a PPP loan, presumably at the time of forgiveness, as to not just the amount and use of a PPP loan received, but also as to its “necessity.”
FAQ #31 stressed the “necessity” requirement for PPP applicants that are “businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations.” Although FAQ #31 used a “public company with substantial market value and access to capital markets” as an example of an entity unlikely to make the required certification in good faith, FAQ #37 expanded the application of FAQ #31 to all borrowers, not necessarily just larger or public businesses. FAQ #39 provide that the SBA will automatically audit all PPP loans worth $2 million dollars or more.
As RCRI members who have received PPP loans are well aware, the necessary certifications center on the borrower as an “eligible recipient;” the “necessity” of the borrower in receiving the loan; and, the qualified uses of the PPP loan. Please review the May 1, 2020 Timely Topics presentation for further discussion.
As shared in the Timely Topics May 1, 2020 presentation, documentation is key. Documentation related to fiscal standing; availability of credit; benefactor support; resource questions; local governmental COVID-19 orders impacting the region; remote-working capacities (or lack thereof); and, challenges to current or future funding, as well as streams of income, should be accurately kept. Again, see the Timely Topics presentation for further discussion.
Religious institutes should carefully review and support through documentation the PPP loan request, and its accompanying certification, so as to be prepared for any possible review by the SBA at the time of anticipated forgiveness. The extended safe harbor of May 14, 2020 provides a borrower to repay the loan in full and prior to the SBA deeming the required certification having been made in good faith as to the loan’s necessity.
Keep in mind it is not necessary to demonstrate likely closure of the religious institute and/or sponsored work’s civil corporation at the time of PPP application, nor does the religious institute and/or the sponsored work need to demonstrate that it had no other means of obtaining credit. Indeed, the US Treasury stated that it was waiving “the usual SBA requirement that [the applicant] try to obtain some or all of the loan funds from other sources.” However, the SBA does reserve the right to review and scrutinize the perceived need for the funding. See the Timely Topics May 1, 2020 presentation for more details.
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