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PPP Loans – The ‘Good Faith’ Certification, and a Safe Harbor Deadline

One of the most interesting facets of the PPP application process was the self-certification process – applicants simply had to tick a box to confirm that ‘current economic uncertainty makes this loan request necessary’.

At the time of application there was no clear guidance available on what might define necessary, rather ‘good-faith’ was to be the overriding criteria.

Cue thousands upon thousands of applications, a rapid exhaustion of allocated funds, and numerous stories of many small businesses, those likely most in need, missing out on essential funding. All hardly unsurprising when you consider the rapid drafting and ambiguous language of the Act itself.

To attempt to correct matters, as of 5th May, the US Treasury Department has implemented a ‘Safe Harbor’ deadline of the 14th May.

This deadline gives businesses the opportunity to review whether or not they really did need to apply for PPP funding, and return any PPP funding received with no penalty. The Treasury has also committed to providing more guidance in this period on how the ‘good-faith’ certification will be reviewed.

Additionally, any loans provided in excess of $2 million will also be audited.

Until this additional guidance is issued, we recommend all PPP applicants consider the following questions to review whether their own good-faith certification was suitable:

  1. What uncertainties have arisen as a direct result of COVID-19 that are affecting your business?
  2. Have you already had requests to delay or cancel work from clients & customers?
  3. Are there any limitations you have on uses of existing working capital – such as banking covenants?
  4. Are there existing circumstances which limit your access to additional borrowings, such as poor credit or insufficient working capital that would result in an unsuccessful application?
  5. Would dipping into exiting working capital present significant risk to existing business operations?
  6. Without PPP funding, would your business have to reduce headcount or salary costs?
  7. Would any cuts to existing payroll arrangements result in your current employees seeking opportunities elsewhere, or seek unemployment?
  8. Is there evidence within your own industry that COVID-19 will have a detrimental affect on business performance – are competitors experiencing similar issues?
  9. How are you currently impacted? Have you had a drop in sales, or forecast revenues?
  10. What other steps are you taking to mitigate the impact of COVID-19? Things such as pay-freezes, postponing planned capital expenditure, use of existing lines of credit, etc.…

We wait of course to see what the promised guidance from the Treasury will look like, but in the meantime, please do get in touch if you’d like to discuss your own PPP application.