Wealth Strategy: Update on Business Owners’ PPP Loan Certification
Calamos Wealth Management Wealth Strategy Group
Author: Nancy E. Anderson, J.D, CTFA, CAP, AEP, CEPA
SVP – Head of Wealth Strategy and Trust Services
The following information is intended to help business owners with information related to the Paycheck Protection Program (PPP) loans offered through the Small Business Administration (SBA) and Economic Injury Disaster Loans (EIDL) and Emergency Grants.
We encourage business owners to work with their local business lenders, CPAs and business lawyers to engage them for assistance in preparing the PPP application and supporting documentation. All loan terms will be the same for everyone regardless of the lender facility they use.
Recent weeks have been “fast and furious” for business owners and their legal, tax and financial advisors with respect to federal loan and grant programs created by the CARES Act. We outlined key program details in an article from April 24 2020, Government Relief for Business Owners. Now, after working through those details with a number of clients, we would like to offer a brief update on an area of significant uncertainty for many business owners: certification of the need for and use of PPP loan funds.
Much of the confusion about required certifications stems from the timing of the rules. Given the desire for speed, the SBA made funds available under the PPP program prior to issuing final rules about business owners’ certifications. The SBA attempted to “catch up” the rules with an interim final rule issued May 8. Some highlights follow, in the form of some of the most common questions we have heard.
What if I received PPP funds but now realize I didn’t actually qualify to do so?
Recognizing that this situation is unsurprising given the speed at which the program unfolded, the SBA has created a safe harbor under which businesses can return funds on what might be generally characterized as a “no questions asked” basis. The idea is the SBA will consider any certification made in the application process to have been made in good faith and will not pursue an audit or enforcement action. The original date for this return-of-funds safer harbor was May 14; that date was extended to May 18.
My PPP loan amount was small. Will the SBA audit my loan based on my certification of need?
The SBA also created a safe harbor for businesses that received loans of $2 million or less. For these borrowers, the SBA will not initiate an audit based on the owner’s good-faith certification. (However, the SBA could conceivably perform an audit based on other factors.) As reasons for this move, the SBA outlined three factors:
- Smaller businesses likely had less access to other sources of liquidity and, therefore, there’s a stronger presumption of need
- Smaller businesses are more likely to keep and/or rehire employees if owners have greater confidence they will not be responsible, unexpectedly, for repaying the loan
- The SBA has limited audit and other investigatory resources and will focus on recipients of larger amounts
My PPP loan amount was more than $2 million. Now, I feel that I don’t meet the qualifications. Am I in trouble?
The SBA further stated that while borrowers who received more than $2 million are subject to an audit and potential fine to ensure good-faith certification. However, if the SBA determines a lack of good faith based on inadequate application/interpretation of the final rules, the borrower can expect no negative action, so long as the funds are repaid.
A massive relief program such as the PPP, which was quickly developed and even more quickly implemented, is bound to prompt confusion as the details get worked out in practice. It’s encouraging to see the SBA’s rule-making process appearing to give smaller business owners some good-faith benefit of the doubt.
In our work we are seeing incredible examples of tenacity and creativity on the part of business owners to remain a source of service and employment to their communities. And, with more clarity and certainty around the use and distribution of PPP funds we hope to see a trend toward long-term recovery for business owners.