Guest blog by Chelsea Groton Bank
If your business or organization has been the recipient of a SBA Paycheck Protection Program (PPP) Loan through Chelsea Groton Bank, or another participating lending institution, you may qualify to have the loan forgiven if the loan proceeds are used to pay certain eligible costs. Keep in mind:
- The amount of loan forgiveness will be reduced if less than 75% of the funds are spent on qualified payroll costs over an 8-week period, which begins when PPP loan proceeds are disbursed.
- Forgiveness is also based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, and/or if salaries and wages decrease.
- Ensure you are keeping good records of loan proceeds spent during this 8-week period, including receipts, copies of checks, and any other documentation that helps to verify how funds were used in order to support a forgiveness request.
Certification and attestation
In addition to the requirements above, new guidance was set forth from the Small Business Administration that applies to new loans and previously applied-for loans:
- At application time, borrowers assessed their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations. SBA now requires borrowers to take into account alternative avenues of liquidity, but has not provided standards for determining availability. Please consult with your tax advisor, accountant and any other professional advisors.
- Businesses that have received PPP loans or that are considering applying should carefully evaluate their currently available cash balances, as well as whether additional financing may be available from their lenders and financial sponsors and on what terms.
- Public companies with the ability to access public markets need to consider carefully whether they can make a need certification. While the new guidance in the FAQ directly addresses public companies, it is not limited to public companies, and all borrowers are required to take into account alternative capital resources.
- This guidance applies retroactively to PPP loan recipients. Borrowers who want to reassess the validity of their certification can return the loan proceeds by May 14, 2020. If they do so, they will satisfy the “good faith” certification requirement.
What this means to you
The new guidance reinforces that borrowers should carefully analyze and be prepared to demonstrate to the SBA the need for a PPP loan. Borrowers should carefully document their process for determining the need for the PPP loan in board minutes and other materials. These should include cash flow projections, balance sheet and other relevant financial statements, and the availability of alternative financing (including terms, timing and other factors with respect to any such financing).
While the need certification will depend on the facts and circumstances of each borrower, best would be a record demonstrating that a PPP loan would save the jobs of employees who are soon to be terminated or furloughed, as this would be aligned with the congressional intent of the PPP. Borrowers should be prepared to have their determinations of need scrutinized by the SBA — both at the time of loan origination and upon application for loan forgiveness.
In addition, the SBA will conduct a “full audit” of PPP loans made in amounts over $2 million to ensure the borrower’s legitimate economic need before they can be forgiven.
- If, upon reviewing the above, you feel your request has been made in good faith, no additional action is needed at this time.
- If, upon reviewing the above, you feel you need to retract your application, please first consult with your tax advisor and accountant about your particular situation. If, after consulting with your tax advisor and accountant, you decide to retract your application, please call 860-448-4195 before the May 14, 2020 deadline. A member of our team will be in touch to walk you through the necessary steps for retracting your application, based on the stage of the application process you are in.
- If you have additional questions related to your loan, please work directly with your Banker.
Other loan terms and conditions
- The PPP loan has a maturity of 2 years and an interest rate of 1%.
- SBA PPP Loan payments will be deferred for the first six months.
- No collateral or personal guarantees are required.
- Neither the government nor lenders will charge small businesses any fees.
To learn more about Small Business Administration (SBA) PPP loan forgiveness, please visit the SBA PPP program guidance resource page.
The Small Business Administration (SBA), along with the Treasury Department, is continuing to develop guidance on specific documents and calculations to use in determining their loan forgiveness amount under the PPP. Continue to check the Treasury’s website for new Interim Final Rules (last updated May 6), PPP Loan FAQs (last updated May 6), and other information about the Paycheck Protection Program, such as Forgiveness and Economic Injury Disaster Loans.