The following is a list of questions and other considerations for borrowers, as it relates to their Economic Uncertainty certification for the PPP loan. Borrowers must be prepared to demonstrate to the SBA their bases for the certification. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional. Practice What You Preach: Trade Secret Rules (Of Course) Apply to... Chancery Court Sustains Derivative Action Alleging Caremark Claims. Given the uncertainty as … "The AICPA's position is that the certification was intended to permit a borrower to self-assess its need for a PPP loan based on the economic uncertainty it was aware of at the time of its loan application. The PPP program requires all borrowers to certify that “current economic uncertainty makes this PPP loan request necessary to support the ongoing operations of the Applicant.” You should be able to show that the loans helped to cover immediate losses, business disruption, avoid employee layoffs, avert uncertainty around consumers or suppliers, etc. With this in mind, sources of liquidity likely include cash on hand, unrestricted reserves or investments, available lines of credit (however, consider the possibility that a bank may freeze or not renew a line of credit due to, among other things, material adverse change clauses in the applicable agreements), elimination of bonuses, pay reductions for highly compensated employees or owners, reduced profitability and elimination of dividends or distributions. Any challenge to your PPP loan certification will need to be reviewed in that light. Lenders may rely on a borrower's certification regarding the necessity of the loan request. Whistleblower Rewarded over $800,000 for Reporting to the Government... Tycko & Zavareei Whistleblower Practice Group. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Health care providers are now aware of the amount of funding they received from the Provider Relief Fund. Although certification isn't new, the U.S. Small Business Administration (SBA) released FAQ 31 on April 23, 2020, cautioning prospective borrowers that they need to certify that the loan is indeed necessary to support ongoing operations and providing those who have received PPP loan proceeds already who wish to reconsider their certifications the opportunity to return the proceeds by May 7, … Developers Prevail in Dispute Regarding Key Housing Legislation. Borrowers need to be able to clearly demonstrate the basis for the certifications in their loan applications, particularly the necessity certification. UPDATE: Following FAQ 43 issued by the U.S. Treasury and SBA on May 5, 2020, this article has been updated to reflect May 14, 2020 as the safe harbor repayment date. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. There are four key takeaways from this new guidance: SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. The loan proceeds might be utilized to take care of finance costs, lease, interest, and utilities. Considerations for Implementing AI/ML in Your Business. Any borrower of more than $2 million will be audited and many borrowers of lesser amounts will be audited as well. He also represents buyers and sellers of financially distressed companies and distressed debt, and regularly advises lenders, creditors' committees, indenture trustees, debtors and other parties involved in bankruptcy-related matters. If a borrower’s First Draw PPP loan is under SBA review ($2 million threshold for need certification would be one situation) or if the SBA has information that indicates the borrower may not have been eligible for a First Draw PPP loan, the borrower won’t receive an SBA loan number for the PPP 2 Loan until the First Draw PPP loan is resolved. PPP Good-Faith Certification of Economic Need and Eligibility Audits May 11, 2020 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) became law that included the Paycheck Protection Program, its expanded SBA 7(a) loan program to offer payroll protection loans (“PPP loans… In addition to the documents listed above, you will need one of the following (your choice) to demonstrate your revenue reduction: 2019 and 2020 tax forms (IRS Form 1040 Schedule Cs). UPDATE: Late on May 13, 2020 the SBA added Question 47 to its FAQs which extends the deadline to pay back the PPP loan to May 18, 2020.. 47. The SBA Paycheck Protection Program (PPP) is designed to help small businesses and independent contractors who have been negatively impacted by the COVID-19 pandemic. PPP Loan Certification: the Need for Caution Continues! Stuck in the States: Canadian Company Trapped in TCPA Suit in... NY Attorney General Probes Arsenic in Baby Cereal, The Challenges Facing Manufacturers Wishing To Sell Products Globally, CPRA Series: The CPRA and Risk Assessments, Cryptocurrencies and Other Digital Assets: A New Regime. 31, specifically providing, among other things, a "limited safe harbor with respect to certification concerning need for PPP loan request." In this article, we share our thoughts on what this guidance means and how to apply it. International Financial Reporting Standards IFRS, Public Company Accounting Oversight Board PCAOB, Outsourced Portfolio Company Accounting Services, Cybersecurity & Privacy Advisory Services, Forensic, Litigation and Valuation Services, Transaction and Financial Advisory Services, Virtual Chief Information Security Officer Services (vCISO), General Data Protection Regulation (GDPR), Employee Benefit Planning and Tax Compliance, Professional Trade, Membership Associations and Societies, International Financial Reporting Standards, Public Company Accounting Oversight Board, Cybersecurity Guidance for Retirement Plans, The standard against which a business should measure their projected performance is the ability to, The business should be evaluated as it is/was at or about the time the PPP loan application was submitted. On April 24, Treasury issued additional Interim Final Rules that formalized and expanded on FAQ No. The National Law Review - National Law Forum LLC 4700 Gilbert Ave. Suite 47 #230 Western Springs, IL 60558  Telephone  (708) 357-3317 or toll free (877) 357-3317. On May 1, 2020, we released an article addressing the economic uncertainty with a PPP loan, and this article follows up on that topic. PPP Loans — Building the Case to Support Your Certification of Economic Need. The following is a list of questions and other considerations for borrowers, as it relates to their Economic Uncertainty certification for the PPP loan. He is experienced in structuring and negotiating business transactions for clients ranging from startups to established companies. FAQ #46 –Businesses have been faced with a decision of whether to return their PPP loan proceeds for fear of enforcement actions if it were to be determined their “necessity certification” made in acquiring their loans was deemed to be inappropriate. Since the release of several FAQs and a safe harbor provision by the Treasury Department, a number of Paycheck Protection Program borrowers have expressed a fair amount of angst regarding their need for these funds and, indeed, tens of millions of PPP loan funds have already been returned. If a Contract Claim Walks and Talks Like a Contract Claim, It is a... Texas Governor Signs Bill Exempting Medical Billing Services from... Texting Post-Duguid: Can Consent Practices Change? Document types required for a PPP application depend on the type of … Certification of the Need for PPP Loan Funds . The purpose of which was to determine if the loan should be repaid to avoid undue government scrutiny. The PPP Loan Necessity Questionnaire is 9 pages with … In FAQ #31, SBA reminded all borrowers of an important certification required to obtain a PPP loan. In COVID-19 Information Hub by Coolidge Wall May 7, 2020. – Consult with legal, business/accounting and banking advisors to determine what business records should be maintained and retained to support your certification. He also assists clients in the formation of... You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. Recent Study Shows Lack of Compliance With CMS’ Hospital Price... Oregon Adopts a Significantly Modified (and Legally Vulnerable)... Handling Grievances webinar follow-up questions, Part 3 (UK). We believe this is best done with a formal financial projection and a narrative explaining the rationale for need. The content and links on www.NatLawReview.com are intended for general information purposes only. On December 9, 2020, the Small Business Administration (SBA) released Paycheck Protection (PPP) Loan FAQ ... , provide insight into how the SBA will evaluate a borrower ’ s “need” certification. Or perhaps the decline in revenue to date has not been as severe as originally anticipated. These FAQs address, among other things, the "necessity" certification in the PPP loan application (see question 31). Reliance on Aspirational and Futuristic Statements in a Prior... Demystifying Public Policy To Enable Enforcement Of Foreign Awards –... Mexican Labor Law Amendment Abolishes Outsourcing of Personnel. The amount of a PPP loan is around equivalent to 2.5 times the candidate’s normal regularly scheduled payroll costs. The extent of the assessment and the level of documentation will depend, in part, on the size of the loan. If a borrower makes the necessity certification, it should take affirmative steps now to document its need, and prepare and maintain detailed records and analyses supporting its determination of necessity, including a detailed analysis of its working capital and liquidity at the time the application is submitted, as well as the availability of capital from other sources. In order to apply for a PPP loan, do I need to fill out a Borrower Application Form that includes certification requirements? Pennsylvania Employees, Organs, and the FMLA – Oh My! We don’t know what the penalties might be if you decide you don’t need some or all of the funds and you return them after May 7, but this is certainly a much better alternative than keeping funds you cannot justify retaining in good faith. Latest News Archive News Archive. There is information about your business available today that may not have been available at the time the PPP application was submitted. What if it takes 3 months, 6 months or 12 months to return to. PPP Loans – Need to: Document, Document, Document briefing by Kimberly Ripberger, CPA. Safe Harbor: As this guidance is retroactive to certifications that pre-dated the guidance, the SBA has provided a limited safe harbor. Certification of the Need for PPP Loan Funds . SC Allows Two Indian Parties to Choose... Failure to Cruise Past the Pleading Requirements in the Norwegian... China Issues Second Version of the Draft Personal Information... Hunton Andrews Kurth’s Privacy and Cybersecurity, DOE Report Highlights Opportunities For Hybrid Energy Systems R&D, Hydrogen Alert- Updates to Hydrogen Policy and Funding in Australia. Warns Customers of December Data Breach, Data Protection Obligations in International Arbitration, COVID-19: US State Policy Report – April 23-27, 2021. PPP Loan Statement of Need – Loans Over $2 Million November 2, 2020 by Cheryl Ganim, CPA The Small Business Administration (SBA) has begun sending Paycheck Protection Program (PPP) Loan Statement of Need Questionnaires to review the good-faith certification of economic need that borrowers made on PPP loan applications over $2 million. 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. Borrowers that fail to make their certifications in good faith may be subject to civil and criminal penalties, including liability under the False Claims Act. The news last week described the PPP certification of need and possible ways to document it with narratives, financial forecasts and cash flow projections to support uncertainty and need at the time you applied for it. SANFORD MICHELMAN, BRYAN JOHNSON APRIL 23, 2020. The guidance retrospectively honed the scope of loan eligibility, imperiling some loan … In FAQ #31, SBA reminded all borrowers of an important certification required to obtain a PPP loan. Keep in mind that the projections should reflect what was known at the time of the application and the level of uncertainty that existed at that time. While the need certification will depend on the facts and circumstances of each borrower, best would be a record demonstrating that a PPP loan would save the jobs of employees who are soon to be terminated or furloughed, as this would be aligned with the congressional intent of the PPP. 0. This list is not meant to be all-inclusive. Hedge Funds and Private Equity Firms Ineligible: In its Interim Final Rule dated April 24, 2020, the U.S. Treasury stated that hedge funds and private equity firms are ineligible for a PPP loan because they are "primarily engaged in investment or speculation.". Twitter. Beware! Mental Health Parity Compliance Returns to Forefront for Group Health... Weekly Bankruptcy Alert May 3, 2021 (For the week ending May 2, 2021). Home Latest News PPP Loan Forgiveness-New Rules Ease Certification of Need. Inventor Assignments – Problems on the Horizon, Weekly IRS Roundup April 26 – April 30, 2021. Jeffrey M. Schwartz, a Principal in the firm's Creditors' Rights, Insolvency & Bankruptcy group, focuses his practice on the representation of secured and unsecured creditors in business reorganizations under Chapter 11 of the Bankruptcy Code and in out-of-court restructurings. In the letter, the AICPA points out that PPP borrowers were required to make a "good faith certification" of need for the loan at the time of the loan application. The Small Business Administration (SBA) has begun sending Paycheck Protection Program (PPP) Loan Statement of Need Questionnaires to review the good-faith certification of economic need that borrowers made on PPP loan applications over $2 million. PPP Loan Forgiveness-New Rules Ease Certification of Need. Forgiveness. Borrowers that submitted their applications prior to April 23 should revisit the necessity certification in light of the latest SBA guidance, and if the borrower is uncertain about its ability to make the necessity certification, it should give serious consideration to repaying the loan before the May 14 safe harbor deadline. Perhaps you were aware that some of these things might happen, but there was still considerable uncertainty at the time the application was submitted. Possible areas include: • 31, “Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?” In the response, Treasury pointed out that borrowers are required to certify that “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” They go on to say that “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 detrimental to the business. It was no surprise that the first $349 billion of PPP funds were exhausted in just two weeks. How to Apply for PPP Loan. California Health Care Stakeholders, Providers and Investors Take... ‘90-Day Fiancé’ – The K-1 Fiancé Visa in the United States, COVID-19: US State Policy Report – April 28-29, 2021, OSHA Targets Restaurant Industries for COVID-19 Inspections. On April 23, the Treasury Dept. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. If you’ve received and exhausted a previous first-time PPP loan, you may now qualify for a second draw PPP. "The CARES Act calls for an eligible recipient to certify that the 'uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient,'" the letter says. New PPP Loan Guidance: Borrower Certification Requirements and New Safe Harbor. Ramifications for Certifications Not Made in Good Faith: Borrowers may be subject to audits and enforcement scrutiny. Certification Criteria for Borrowers. As expected, the House of Representatives has passed the $480B coronavirus relief package that will serve to provide financial help to small businesses and hospitals feeling the sting of the coronavirus pandemic and expand COVID-19 testing. A number of borrowers have observed that the amount of their PPP loans, determined based on the application formula of 2.5 times average monthly payroll costs, may be more than they require as a business necessity and have questioned whether they can partially repay their PPP loans on or before May 14. Also, will the SBA call into question the legitimacy of a certification if a business has received a PPP loan that it has not yet used and may or may not need before May 7, but wishes to retain because it does not know whether future events will affect the viability of its operations? The guidance, outlined in FAQ 31, reminds borrowers that they "should review carefully the required certification that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.". On the other hand, reductions in profits, and even operating losses, might not be detrimental if they don’t result in covenant violations (defaults) or working capital insufficiency; nor would the inability to pay dividends. Below, we share our thoughts on how to interpret the standard imposed by the Act and what should be considered in making this assessment. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith. The required certification was in place before. Facebook. Detrimental outcomes would likely include violations of existing debt covenants, inability to service existing or new debt, defaulting on lease agreements, or reductions in working capital that would make it difficult to operate the business in a prudent manner, including needed capex, repairs and maintenance. By Dan. Louisiana Tax Commission Issues Hearing Notice for 2022 Rulemaking... India: Party Autonomy Trumps! FAQ #31 asked whether large companies with adequate sources of liquidity qualified for a PPP loan. 31, and states again that "[a]ny borrower that applied for a PPP loan prior to issuance of this … National Law Review, Volume X, Number 120, Public Services, Infrastructure, Transportation. 4 was released reiterating the required certification and providing a safe harbor to avoid prosecution and potential criminal liability under the False Claims Act. US Federal Labor Viewpoints – Week of April 26, 2021, May 4, 2021 Foley Weekly Automotive Report. Lawsuit Alleges Kodiak Cakes Lack Claimed Protein Content. If the projected revenue/collections plus the available other sources of liquidity are not sufficient to carry the business through this challenging time while retaining and maintaining workers at or near pre-pandemic levels, we believe it would be reasonable to conclude you meet the standard of need. May 14, 2020. Not everyone will agree with all the points below, and this is clearly not a one size fits all scenario. According to Forbes, technical shortfalls and unclear guidelines have created difficulties for businesses, in dire need of support, to access funds.. For businesses that received PPP assistance when they needed it, loan forgiveness is paramount. Borrowers applying for a second draw Paycheck Protection Program (PPP) loan must make the same uncertainty certification (sometimes referred to as the “necessity certification”) that they made in connection with their first draw PPP loan: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Yes, you do. This new rule builds on the apparent requirements first enunciated in FAQ No. Any borrower that applied for a PPP loan prior to April 23 will be deemed to have made the necessity certification in good faith if the loan is repaid in full by May 18. Audits for Loans Over $2 Million: Both the SBA and U.S. Treasury have signaled a very strong enforcement bias, publicly stating that any borrower that has received over $2 million in PPP loan proceeds will be subject to an audit, with spot checks for smaller loans. Australia's International Cyber Strategy Pivots Towards Critical... New York Amends its Off-Duty Conduct Law to Account for Marijuana Use. The wording the SBA used in this sentence, in particular, is interesting: “This certification is required to have been made in good faith at the time of the loan application, even if subsequent developments resulted in the loan no longer being necessary.” Many PPP loan recipients have been concerned about the possibility that the SBA will determine they did not act in good faith in applying … 37 was issued, raising a similar question with regard to privately-owned businesses with adequate sources of liquidity. So far, the only safe harbor guidance is with respect to a payment in full of a PPP loan by such date. (Again, we believe this is consistent with the primary intent of the Act.) Statement in compliance with Texas Rules of Professional Conduct. What is most important is that these decisions be thoughtful, well documented and prudent. New PPP Loan Guidance on Certification of Need and Opportunity for Penalty-Free Repayment by May 14, 2020 Katherine David , Robin Ferriby … Borrowers should note that the False Claims Act does not require specific intent to defraud the government. While the new FAQ offers some limited guidance, it provides no objective test or metrics and many questions remain outstanding. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials. The regulations give businesses until this Thursday, May 7, to return unneeded funds and avoid potential prosecution under the False Claims Act. Pennsylvania COVID Restrictions to Be Lifted, In Appreciation of A Chief Judge’s Quiet Leadership, California Banks And Limitations On Distributions To Shareholders. On December 9, 2020, the Small Business Administration (SBA) released Paycheck Protection (PPP) Loan FAQ ... , provide insight into how the SBA will evaluate a borrower ’ s “need” certification. PPP Loan Application and Certification of Need. In the event that the SBA determines that a borrower “lacked an adequate basis” for making the Need Certification, the SBA will seek for that borrower to repay the outstanding PPP loan balance and, moreover, will inform that borrower’s lender that its PPP loan is not eligible for forgiveness. In guidance issued in late April, after many Paycheck Protection Program (“PPP”) loans had already been funded and the proceeds were being spent, the SBA said borrowers needed to assess their need for the loan – even if they had already certified in “good faith” that the cash is necessary to support ongoing operations. This new rule builds on the apparent requirements first enunciated in FAQ No. EUON Publishes Nanopinion on Biotransformation of Nanomaterials While... NYC Proposed Citywide Hotel Special Permit Moves into the Public... Price Gouging Weekly Round Up - May 3, 2021. There are differing opinions regarding how the SBA will evaluate a business’s need for the funds. The certification language in the original loan application underscores that economic uncertainty and need must be present at the time of the loan request. Those borrowers questioning whether their certification that "current economic uncertainty makes this loan request necessary to support the ongoing operations" was appropriate may repay the loan in full prior to May 14 and will be deemed to have made the certification of necessity in good faith. The safe harbor provides that “Any borrower that applied for a PPP loan prior to the issuance of this regulation and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.” The very next day, FAQ No. 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. The reason for this angst is understandable. The PPP loan application requires, among other things, that applicants certify that the current "economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." Certification Made in Good Faith. On April 24, Treasury issued additional Interim Final Rules that formalized and expanded on FAQ No. 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." However, the Treasury Department’s statement that “it is unlikely a public company with substantial market value and access to capital markets will be able to make the required certification in good faith … ” certain, insinuates that you must consider the availability of credit elsewhere in making your good faith assessment. As such, only First Draw PPP Loans meeting the threshold will be subject to the “necessity” questionnaire. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business's ongoing operations qualify for a PPP loan? Inaction is not a good choice for any borrower. Alternatively, if you determine that you can get through the next 6 to 12 months in a way that is not detrimental to the business, then you should consider returning the funds. Restrictions on Travelers from India due to COVID-19 Begin May 4. On April 23, 2020, the U.S. Department of the Treasury issued Question 31 on its Frequently Asked Questions (“FAQ”) related to the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) Loan Program. The new PPP forgiveness application instructions require borrowers to retain all the documentation supporting their eligibility certifications, and make those materials available on request by the SBA. Revenue/support should be projected based on the existing projects and backlog, taking into account anticipated delays due to mandatory and voluntary work from home orders, the anticipated duration of the shut-down and the time it would take to ramp back up to, or near to, 2019 levels. How long will social distancing last, and what impact will that have on my organization’s operations? Not-for-profit organizations may now know that state grant funding will continue to June 30 (or beyond) or that their virtual gala was nearly as successful as the live event they had planned. To further ensure PPP loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application. Since the release of several FAQs and a safe harbor provision by the Treasury Department, a number of Paycheck Protection Program borrowers have expressed a fair amount of angst regarding their need for these funds and, indeed, tens of millions of PPP loan funds have already been returned. Any borrower that applied for a PPP loan prior to April 23 will be deemed to have made the necessity certification in good faith if the loan is repaid in full by May 18. The Act specifically states that you don’t need to demonstrate an inability to obtain credit elsewhere in order to qualify for a PPP loan. India - COVID-19 2.0: Supreme Court Intervenes to Temporarily Suspend... LIBOR Fading Away: What Lenders and Borrowers Should Know, Committee Authority To Authorize Share Repurchases. Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. 31, specifically providing, among other things, a "limited safe harbor with respect to certification concerning need for PPP loan request." May The Board Cancel A Declared Dividend? On May 1, 2020, we released an article addressing the economic uncertainty with a PPP loan, and this article follows up on that topic. 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