SBA and Treasury Clarify PPP Requirements for Forgiveness

BY Alex Ayers
4/24/2020 - HVAC Government Affairs , COVID-19

Following news that 150 publicly traded companies received nearly $600 million in Paycheck Protection Program loans, the Small Business Administration and Treasury Department have updated their frequently asked questions document to clarify business’s certification of economic need. The CARES Act suspended many of the borrower requirements including availability of credit from other sources, however the law did maintain the any business that applies for the loan must certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

In the view of the SBA and Treasury Department, most publicly traded companies have access to liquidity unavailable to small businesses that lessens their economic uncertainty. SBA has announced that companies it believes have access to additional liquidity need to provide evidence of why it certified the need for the loan. While this can sound like the government backtracking on its promise, distributors shouldn’t worry.

The information released by SBA explains that when a company applies for a PPP loan it must take “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.” This means that even though many distributors have access to liquidity through their lines of credit, the terms of those credit lines often contain provisions that would be detrimental to the business if fully utilized. In addition, the slowing demand for HVACR products across the country fulfills the question of current business activity.

In addition to the information released by SBA and the Treasury Department, Senator Ron Johnson (R-WI) published an op-ed in the Wall Street Journal attacking companies for applying that do not have a financial need with a threat to retroactively change the forgiveness rules. Senator Johnson’s concern, especially with the publicly traded companies, is valid and the same concern that was addressed by SBA. HARDI will oppose any efforts by the Senate to change the rules of the Paycheck Protection Program and reinforce the existing requirement that a business faced uncertainty at the time of the loan application.

In their attempt to dissuade publicly traded companies from using PPP loans or applying for the next round of loans the SBA and Senator Johnson have unintentionally made many nervous business owners even more nervous. HARDI is working to ensure that Congress or the Small Business Administration does not change the rules of the program after companies secured the loans on the promise of loan forgiveness. The announcement by SBA is not meant to change the rules, simply remind businesses that they must abide by the rules already in place.

To view the updated language from SBA/Treasury, see question 31 here.

View our SBA Loan page for more details and use this form to ask any questions and we will get back to you as soon as possible.