Cares Act Update
Daily Briefing: May 13, 2020
Clients and friends,
I have decided to start posting a daily update on the ever-evolving terms and conditions of the
CARES Act PPP loan program. On the days they take no action, I will try to provide some
useful information that has come up as we assist businesses with the management of their PPP
The SBA has still not focused any attention on the necessary details regarding the rules that
apply to loan forgiveness.
It has become abundantly clear that they are concerned with some borrowers obtaining PPP
loans that didn’t need them. Today Frequently asked Questions 46 and 47 were published.
SBA previously announced that they will examine all loans over $2 million to determine if the
borrower acted in good faith.
Question 46. “How will SBA review borrowers’ good-faith certification concerning
The answer is that any borrower, together with its affiliates that received an initial amount of less
than $2 million will be deemed to have made the required certification…..” The crux of the good
faith issue is this: On the loan application, each borrower asserted that at the time of the loan,
“current economic uncertainty makes this loan request necessary to support the ongoing
operations of the applicant”.
I’m not sure how they will challenge “uncertainty”, but they are indicating that if borrowers had
alternate access to capital, that fact would indicate a lack of need. This will be interesting,
For the borrowers of more than $2 million, if SBA determines that the borrower lacked an
adequate basis for the required certification concerning necessity, SBA will seek repayment of
the outstanding balance and inform the lender that the loan is not eligible for forgiveness.
Further, if the loan is repaid, no further action will be taken against the borrower.
We have to remember, there are millions of these loans and most will request loan forgiveness.
We also have to remember that the processing of the applications for forgiveness will be much
more time consuming than the loan application process. The loan application process required
minimal checking by the bank. What we have so far indicates that there will have to be
reconciliations to payroll tax returns and general ledgers and borrowers will have to provide
cancelled checks. All this will take time and will prove challenging for many of the small banks
who were absolute ROCK STARS when it came to processing loans. They have only 60 days
to process each forgiveness request and as of today, SBA has not issued much guidance.
Question 47’s answer indicates that the “safe Harbor” date for repayment in case you decided
that you could not support good faith need is extended to May 18th.
Action recommendation: Call a special meeting of the board of directors or owners. Document
the reasons for uncertainty. There were huge uncertainties in late March and early April and it
is beginning to look like many large economies like California’s will be running at half or three-
quarter speed for some time to come. Some businesses have already thrown in the towel for
good, so there is a great deal of uncertainty. It is much easier to document your thinking now
than it will be a year or two from now by the time they get around to auditing these loans.