Wealth Strategy Insights

Wealth Strategy: Update on Business Owners’ PPP Loan Certification

18 May 2020

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 OwnersNow, 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:

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.

In closing  

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.

Calamos Wealth Management and its representatives do not provide accounting, tax or legal advice. Each individual’s tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation. For more information about federal and state taxes, please consult the Internal Revenue Service and the appropriate state-level departments of revenue, respectively. This information is provided for informational purposes only and should not be considered tax or legal advice.  Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. 
You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized advice from Calamos Wealth Management LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Calamos Wealth Management LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. If you are a Calamos Wealth Management LLC client, please remember to contact Calamos Wealth Management LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Calamos Wealth Management LLC’s current written disclosure statement discussing our advisory services and fees is available upon request.