An important element of your Paycheck Protection Loan (PPL) application is your certification that, “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.”
In recent days, the Small Business Administration (SBA) has announced that borrowers could be asked to substantiate their need for relief through the Paycheck Protection Program (PPP).
We recommend that the need for PPL funds be documented as you prepare the loan application or, if you have already applied and/or received funding, as soon as possible. This can be in the form of a memo, budget, cash flow analysis or other form deemed suitable by you. This will assist you in verifying your business is eligible for a PPL.
Whatever form your documentation takes, we suggest it include:
- Impact on current and future revenue, including decreased demand, forced closures, etc.
- Uncertainty of receivables or other asset realization
- Increased costs due to operating in the COVID-19 environment
- Employee absenteeism and related labor costs
- Discussions with all stakeholders and any external advisors (i.e. accountants, attorneys)
- Efforts taken to find alternative funding
- Existing lending restrictions or covenants that would restrict or eliminate the ability to obtain alternative funding
- Consideration of use of funds for payroll and other costs which sustain operations of the business and employment of your workforce
Treasury Secretary Mnuchin announced this week that recipients of a PPL over $2 million will be audited by the SBA, so it is even more important for these borrowers to prepare this documentation. We recommend consultation with legal counsel, accountants and other advisors to prepare adequate documentation to support the good faith certification.