Should I Keep My PPP Loan?

Randy Feld

Wondering if you should keep your PPP loan?  We have clients that continue to be resilient and have had minimal impact to their business so far as a result of COVID 19.  Many businesses either have applied or are considering applying for the PPP loan because of continued uncertainty in their business.  As part of the SBA application the borrower must certify in good faith:

  • “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.”
  • “The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.”

Most clients have enough uncertainty that they feel comfortable certifying this, and we’ve seen a few not apply or pay their PPP Loan back due to doing well, seeing less risk or having liquidity.  Clients need to make this decision.

To make matters more uncertain, On April 23rd the SBA published additional FAQ number 31:

  1. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer:  In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application.  Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary.  Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  Borrowers must make this certification in good faith, considering their current business activity and their ability to access other sources of liquidity enough to support their ongoing operations in a manner that is not significantly detrimental to the business.  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.

Lenders may rely on a borrower’s certification regarding the necessity of the loan request.  Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 14, 2020 will be deemed by SBA to have made the required certification in good faith.   The banks have been sending this new certification language to applicants and borrowers since April 24, 2020.

April 28th, Treasury Secretary Steven Mnuchin announced the government will “review all loans in excess of $2 million, in addition to other loans as appropriate”.  Stay tuned, this is something new.

On April 28th, the SBA published FAQ #37, which makes it clear that the above-quoted statements in FAQ #31 apply to all businesses, public and private. On May 5th, the SBA published FAQ #31 which extended the deadline to repay a PPP loan to May 14th.

What to do now?

  • Assess the liquidity of your business, with increased pressure from the Treasury Department and SBA, as noted above, there are reputation and financial risks associated with taking a PPP loan. Unfortunately, in their haste to stimulate the economy and keep employees working, the government made quick decisions on eligibility and rules and now they are changing some of the rules as we go.   For businesses that proceed forward with a PPP loan, we recommend they write an impact statement. See the next bullet point for more information on the impact statement.
  • We recommend writing a detailed impact statement now if you already have the loan or prior to acceptance of the loan funds, for your file (at this time it is not required to be provided to the bank but could end up being needed).

An impact statement is a written quantitative and qualitative writeup of the current situation of the business.  This could include a narrative as well as financial forecasts.  This statement should document what is causing them to find the loan necessary.  Be specific using KPIs and other data.  Some examples of what to include: having operations closed or restricted by local government orders, the marketing pipeline has been affected (provide the % it has declined), revenue has declined (provide the amount or percentage it has gone down), backlog has declined, customers are delaying orders, accounts receivable is increasing and cash flow is declining because customers can’t pay, supply chain issues have caused concern, competitors are seeing difficulty and we think we might be next. The list goes on and is specific to each client situation.

With the new guidance, businesses need to be sure to include what access they have to liquidity (debt or capital). The impact statement should also give a general overview of the businesses use of funds and general strategy related to the PPP loan.  Each business should also document the intended use of the funds from the PPP loan to be at least 75% or more for payroll costs and the rest in accordance with SBA rules.

We suggest you talk with your attorney to seek their advice in determining whether this analysis and written documentation should become part of your corporate records, potentially with a corporate resolution documented by corporate minutes.   By writing the story now, when it’s fresh in everyone’s mind, clients will be in a better position if the SBA comes back during the forgiveness phase or two year later to ask questions.

If you have taken the loan funds and now are not comfortable with the certification, you have until May 14, 2020 to return the loan funds.  The SBA will consider this repayment as appropriate certification.

The team at Boyum Barenscheer is here to help.  Please reach out if you are considering your qualifications for a PPP loan or the possible repayment of a PPP loan.  Each situation is different and the rules are changing frequently.  We will try our best to keep our COVID 19 resource page up to date as guidance continues to be published.


PPP Loan Forgiveness and Deductibility


Give Employees a Voice to Report Fraud