How many of you remember the old ketchup commercial — waiting for the ketchup pour to hit your hot dog or hamburger? Anticipation, an-ti-ci-pay-ay-tion…is making you wait. That is what it feels like waiting for the next pour from the Treasury. By the May 14th Safe Harbor deadline, the Treasury is supposed to tell us how they will review your “good faith” certification that your Paycheck Protection Program (PPP) loan was necessary.
So, is your PPP loan necessary? Can anyone even question whether you used “good faith” when you determined your loan was necessary to support your ongoing operations under the uncertainty of the current economic conditions? The answers are “maybe” and “yes.” Little comfort, I know.
The Treasury will review all loans over $2 million, and will likely expand their review based on their findings — or as they see fit. With hundreds of thousands of loans extended, and 60 days to approve forgiveness, it is likely these reviews will take months or even years to complete. They will have hindsight and the court of public opinion on their side. What you need on your side is documentation. Consider documenting the following:
- Communication with customers, vendors, employees, bankers, accountants, and attorneys regarding the uncertainties:
- Customer delaying jobs or request for longer payment terms
- Supply chain delays, loss of discounts or rebates
- Loss of key employees
- Infected or infection in their family
- Closing of schools
- Stay at home order
- Loss of employee efficiency due to working remotely
- Overall lengthening of cash flow cycle and impact on borrowing base formulas
- Loan covenants
- Impact of lost revenue to your budget costs of capital and infrastructure already in place
- Added debt impacts to current and future operations
- Essential or lack of essential aspects of your business
- Operational changes to your processes due to COVID-19 best practices
- Partial or complete shut downs within your supply chain due to COVID 19
- State mandates or executive orders and their impact on your operations
- Document the potential impacts you had to be prepared for:
- What if the State increases restrictions?
- What if my business was considered non-essential?
- What if an owner or key employee were infected, or worse?
- When will I see the slow down? 2nd 3rd or 4th quarter?
When you take into consideration the inconsistencies and, at times, contradictions among the CARES Act, Frequently Asked Questions, Interim Final Rules, direct comments from the Treasury and Congress, and a recently filed lawsuit against the Small Business Administration, you would be hard-pressed to expect a bright-line test by May 14th that clearly defines the necessity of your loan. With this in mind, putting your own documentation package together puts you in the best position to support your “good faith” decision that the PPP loan was necessary.
The above represents our best understanding and interpretation of the material covered as of the date of this post. Things are moving at a rapid pace, and as such, information is subject to change. This information is provided for informational purposes only and is not intended to be a substitute for obtaining accounting, tax, or financial advice from an accountant.
