Just as a lighthouse warns a ship in foggy or stormy conditions of landfall ahead your trusted  advisors here at Polk and Associates can serve as your beacon to assist your business during these uncertain and often confusing times.  Especially regarding the ever-changing nature of the PPP loan programs.

Since the PPP loan program opened on April 3^rd there has been a tremendous activity by small businesses, SBA lenders and a flurry of pronouncements by the SBA regarding the application requirements and now the forgiveness provisions.  Some things to consider:

If you have not already applied for PPP – please consider doing so

Currently the program is now running through its second round of funding, so we still recommend that you do so if you believe you qualify.  Although they are backlogged funding is still available at the time of this posting.  Please contact us with your questions.  We have assisted many of our clients in determining if this is a good fit for your overall strategy.

If you have applied but have not received funding – keep in contact with your lender

As we mentioned earlier there is currently a backlog, but the lenders and SBA are currently still processing.  Also, there may also be additional funding added later on.  Keep in contact with your lender and begin to formulate your forgiveness strategy.  Please contact us to assist you with formulating your forgiveness strategy even before you receive your proceeds.

Received PPP Funds – what’s next? – Be prepared for your economic need test and work your forgiveness strategy plan

Be prepared to validate the “Economic Need” your certified to in your application.  The following great information below was authored from one of our strategic partners Aprio, LLP:

Do we “NEED” the PPP loan?

Demonstrating and documenting need

Under general SBA lending guidelines, a borrower of SBA funding must show that they were unable to obtain credit elsewhere. However, the CARES Act suspended this requirement. Although the requirement is suspended for PPP applications, the borrower must certify that the current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant. This is commonly referred to as meeting the “need” criteria.

Just the facts

On April 23, 2020, the SBA, in consultation with the Treasury, in FAQ 31, updated their interpretation of the CARES Act and PPP Interim Final Rules to clarify that “borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business”.

While the FAQs provide a deeper understanding of SBA’s interpretation of the law, the concept of “economic uncertainty” and further guidance on determining “need” have not been released.

FAQ 31 appears to focus on large and/or public companies, however the determination of whether or not the borrower had access to other sources of liquidity is not company size specific. Looming uncertainty has given some borrowers pause as the SBA indicated civil or even criminal enforcement down the road is possible.

The SBA previously stated that borrowers who applied for a PPP loan prior to April 23, 2020 can repay the loan in full by May 7, 2020 without penalty. On May 5, the SBA added FAQ 43 which extended the repayment period to May 14, 2020. It is likely that material guidance will be provided over the next few days that provide more details on how companies should measure the “need” provision.

Timing aside, the burning question for some PPP borrowers has become do we “need” the PPP loan?

Documenting the “need”

Documenting the facts and circumstances surrounding your company’s position, thought process and considerations regarding this matter should be considered mandatory. We recommend that companies get started now to meet the May 14th deadline. Items that could be used to document “need” include but are not limited to:

• Current financial situation
• Uncertainties faced resulting from COVID-19
• Macro and micro economic data including industry demand data
• Financial forecasts and projections including scenario modeling of ability to cover payroll costs with and without this funding
• Customer/client analysis
• Vendor/pricing analysis

Under general SBA lending guidelines, a borrower of SBA funding must show that they were unable to obtain credit elsewhere. However, the CARES Act suspended this requirement. Although the requirement is suspended for PPP applications, the borrower must certify that the current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant. This is commonly referred to as meeting the “need” criteria.

Your trusted advisors at Polk and Associates can help you be prepared to defend your need strategy if the question arises.

Work your forgiveness plan – leveraging your trusted advisor at Polk

While there are still many guidance questions to be answered this is the time to work your forgiveness plan to ensure you are maximizing the forgiveness portion of your loan.  As you do this be nimble to adjust your strategy as new guidance is released.

We have developed tools in this area that can assist you and we are closely monitoring new guidance as it becomes available.  The greatest advice we recommend is to reach out to us to help you to navigate these uncertain waters.  Together we will get through this.

As your trusted business advisors, we at Polk and Associates remain committed to assist you during this extraordinary time.  Please reach out to us with questions you may have as we stand with you as we weather this extraordinary crisis.

Polk & Associates

Large enough to serve a diverse clientele, yet small enough to maintain a hands-on approach, we are committed to maintaining the highest accounting and ethical standards with continuous education, extensive research resources, and excellent quality control.

Polk and Associates is a member of the Michigan Association of Certified Public Accountants, and the American Institute of Certified Public Accountants. The firm participates in the AICPA Peer Review Program, and has always received the highest level of award for its audit practice and quality control.