Although the Paycheck Protection Program has helped numerous businesses stay afloat during the coronavirus shutdown, the program has left many small businesses anxious over eligibility and forgiveness rules. The Treasury Department and the Small Business Administration have issued nine (9) “interim final rules” and another forty (40) pieces of guidance in the form of frequently ask questions since the program was rolled out. This has left many employers wading through dense and complex rules and regulations in an already uncertain time. Eldridge Brooks is staying abreast of these changes and will keep updating you with the latest. In the meantime, there are some steps you can take to best protect yourself and ensure the best possible chances to obtain full loan forgiveness.

Businesses can take several steps to ensure they have followed the proper steps to support their certifications in the application and begin developing a record for full loan forgiveness.

Develop a record to support your certification of economic hardship:

  1. Develop a record of the basis upon which eligibility certifications were made when applying for the loan, along with relevant SBA guidance received in making these decisions.
  2. Document personnel decisions that would have been implemented were it not for the receipt of the loan.
  3. Keep records regarding losses in sales, losses in investment, weakness in the capital structure, lack of conventional lending, and reductions in cash reserves.
  4. Maintain a record of the economic uncertainty facing the business such as losses of customers, declines in business metrics, and decline in business operations.
  5. Maintain a record of any disruption to supply chain, reduced sales, contracts put on hold, and increased credit risks.
  6. Review whether the business has access to other sources of liquidity sufficient to support their current operations. Note that exhausting lines of credit could be “detrimental” to the business under the regulations and you would not be required to access liquidity in this way.
  7. Document restrictions in the markets in which the business operates including state and local stay at home orders and other restrictions on the operations of the business.

Develop a record for forgiveness:

  1. Consider the best way to handle PPP loan proceeds given the business structure.  Segregation of funds may be warranted in some circumstances but is not necessary.[1]
  2. Maintain record of all relevant expenses and categorize all expenses for each pay period.

 

These recommendations were made on May 13, 2020 and are subject to change.  If you have any specific questions, please reach out.

[1] There is no requirement in the SBA rules or statute that a segregated account be formed.  Therefore, it is lawful to place PPP loan proceeds in an existing account and that may, indeed, be more practicable for many businesses.  We are aware that many banks have advised businesses that this practice is permissible.  The issue of tracking expenses pertains to potential forgivability and, in order to be forgiven, borrowers must document that the business spent money on payroll, rent, and other forgivable expenditures.

Morgan R. Johnson
Associate Attorney
morgan@eldridgebrooks.com
479.595.2725