Update – PPP Loan Forgiveness

Prepare to Verify Your Certification, Potential for Audit

On April 28, the US Department of Treasury issued updated guidance regarding loan forgiveness. The Small Business Administration (SBA) will audit all Paycheck Protection Program (PPP) loans exceeding $2 million on submission of a loan forgiveness application. Subsequent updated guidance provides that the SBA will audit not only those loans, but loans of other amounts will also be audited “as appropriate.”

As part of the PPP loan application process, loan applicants certify, among other things, the “current economic uncertainly makes this loan request necessary to support ongoing operations.” Several businesses that have secured PPP loans, Shake Shack and Potbelly, among others, have been criticized for accepting loans from a program designed to help struggling small businesses. The Treasury department cautions borrowers that they must make the economic uncertainty certification “in good faith,” considering their current business activity and their ability to access other sources of liquidity enough to support ongoing operations. They further stated, “It is unlikely that a public company with substantial market value and access to the capital markets will be able to make this certification,” and those borrowers should be prepared to demonstrate to the SBA the basis for that certification.

If a borrower did not consider these liquidity criteria when it applied for the loan—and there were no such criteria before April 28—then the SBA has provided that the borrower may return the loan proceeds in full by May 7 and the SBA will not submit the borrower to further scrutiny. As a result of this updated guidance, some businesses are now rethinking their decision to apply for a PPP loan.

If the above does not apply to your business, there are important actions to take now in support of your request for loan forgiveness:

  • Ensure you have a thorough understanding of the information requested in the loan application. Work closely with your lending bank, accountant, attorney or other advisor.
  • Keep meticulous records of those communications and documentation supporting your responses to the PPP loan eligibility criteria and certifications. Consider creating a written position statement identifying all the reasons why your business needs the PPP loan, and cite source documents. Documentation should include everything related to completing the application and all records relating to loan approval.
  • Documentation relating to your utilization of the funds is also important as this will form the basis for your forgiveness application.
  • If you have not already begun compiling that data, do it now. Failure to maintain records could result in your lender denying some or all your loan forgiveness request.
  • Keep all PPP-related files in a secure location with limited access.

Additional guidance pertaining to PPP loan forgiveness is anticipated, and R&A will keep you updated. If you have any immediate questions, please contact your R&A advisor.


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About this Author

Allison and her team provide a comprehensive suite of outsourced accounting and financial services to clients. Prior to joining R&A in June 2018, Allison worked in the nonprofit sector for thirteen years. Her experience also includes more than ten years of teaching at the university level. Allison holds a bachelor’s degree from the University of Chicago and master’s degrees in social work from Eastern Washington University, business administration from Gonzaga University, and professional accounting from Colorado State University. Allison is an avid basketball and baseball fan who also enjoys travel, home improvement, and spending time with her family.