Be alert that there will be additional scrutiny for any PPP loan over $2 million prior to forgiveness. Treasury Secretary Mnuchin told CNBC and other media outlets that any company taking more than $2 million from the small business loan program will be subject to a full audit prior to loan forgiveness. Additional FAQs were issued by the Department of Treasury on April 26, 2020 which address the borrower’s responsibility in certifying and attesting to representations in the PPP application.
Government guidelines are pushing responsibility to the borrowers.
It will be the borrower’s responsibility to certify their loan request was necessary and to certify they had no other source of funding.
It will be the borrower’s responsibility to certify their payroll levels the preceding year. Borrower’s will be attesting to the accuracy of those calculations. Lenders will be able to rely on borrower representations.
It is the borrower’s responsibility to determine affiliated entities and headcount of borrowers and affiliates.
Borrowers are not able to double count paid sick leave under the Paid Sick Leave Refundable Credit program and under payroll totals for the PPP program.
Lenders taking on new customers under the PPP will need to follow the strict beneficial ownership information gathering requirements.
Overall, the ease of forgiveness of the PPP loans is being questioned based on the publicity surrounding the Los Angeles Lakers, Ruth’s Chris Steakhouse, and other large and/or publicly traded high profile companies applying for and receiving PPP loans. While the parties in question have or intend to repay the PPP loans, the program is receiving a black eye for these misuses of funds intended to assist small businesses.
The $2 million threshold pushes the scrutiny down to the level of many small to mid-size businesses. It should be anticipated that there may be delays in receiving SBA loan forgiveness, that certifications of owners will be required which could place the owner in a difficult situation, and that overall documentation of payroll and disbursements is going to be critical.