In addition to figuring out logistics, families with preschoolers who want to start a learning pod need to keep in mind potential legal pitfalls. Below are some tips for managing your legal risk.
When you apply to have your PPP loan forgiven, be prepared to demonstrate why the loan was “necessary” for your business to survive the current crisis.
If you are concerned your PPP loan was not “necessary” under the new guidelines, repaying it by May 7th will protect your business from potential fines and penalties.
Ask your bank if the SBA’s new guidance will impact your loan
Businesses with cash reserves or existing credit lines who received PPP loans may want to pay them back before Thursday, May 7, 2020, to avoid potential liability.
PPP loan applicants must certify their loan request is “necessary” due to current economic uncertainty. Businesses who certify that a loan is necessary when they do not in fact need the funds may face fines and penalties, including criminal charges under some circumstances.
Until last week, there was no guidance on what businesses needed to demonstrate to prove a PPP loan was “necessary.” On Friday, the SBA released new guidance stating that a loan may be deemed unnecessary if the applicant has access to other sources of liquidity. All PPP loans, even those funded prior to last week, will be judged by this new standard. Under the new guidance, borrowers must certify in good faith a PPP loan is necessary, 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.
The SBA’s new guidance was spurred by public backlash to reports of large companies receiving PPP loans, such as Ruth’s Chris, the Los Angeles Lakers and Harvard University. The SBA’s announcement focused on publicly traded companies. However, it is fair to suspect that some businesses who would have been able to reasonably sustain operations through June 30th without a PPP loan may be impacted.
The SBA has all but acknowledged they are changing the rules of the game. Loan recipients who do not meet the “necessary” standard under the new guidance have until May 7th to return PPP funds without penalty. It is unclear how aggressive the SBA will be in scrutinizing whether non-public companies truly needed a PPP loan. Even if they do not impose fines and penalties, the SBA possibly could refuse to forgive loans if it is later determined the loan wasn’t necessary because the business could have sustained operations without the loan proceeds.
The SBA’s announcement adds to the confusion around PPP loans. Unfortunately, more retroactive adjustments will likely be made to the program that could expose businesses to fines and penalties and alter the requirements for loans to be forgiven. Stay tuned.