Paycheck Protection Program: Be Prepared to Demonstrate Need for Funds

In response to public outcry over large publicly traded companies receiving Paycheck Protection Program (PPP) funds, Treasury Secretary Mnuchin has stated that PPP loans in excess of $2,000,000, in addition to other loans as appropriate, will be subject to audits.

The Small Business Administration (SBA) will be evaluating the accuracy and truthfulness of the borrower’s certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant”. Borrowers should anticipate demonstrating their need for the funds to the SBA if requested as well as a public relations response, as the PPP is subject to the Freedom of Information Act.

It is important that borrowers immediately document in detail the economic uncertainties facing their business, and to provide statistical and financial information to support their assertion. Although every business’s narrative is unique, some common issues include:

  • Effect of government mandated suspension of business operations or shelter in place orders, including uncertainty as to when operations will be able to resume normal capacity
  • Overall industry forecasts for future economic downturn due to coronavirus outbreak
  • Budgetary reductions implemented as an immediate response to the outbreak
  • Disruption of operations of key customers or industries the business derives revenue from, resulting in requests for price concessions, collection delays, and increase in uncollectable accounts
  • Unexpected business expenses for site remediation, personal protective equipment, screening, technology, remote workforce deployment, penalties for delayed project completion, and increased procurement and shipping costs due to supply chain disruption
  • Effect of outbreak on business’s access to liquidity due to disruption in financial markets, availability of new credit to support ongoing operations, or loss of existing credit due to covenant violations caused by outbreak
  • Future operational shutdowns or disruptions due to additional waves of outbreak later in 2020
  • Workforce productivity losses resulting from remote deployment

All PPP borrowers are advised to take immediate action and thoroughly document this information to protect the legitimacy of their assertion and the reputation of their business.

Our teams at BerganKDV are rallying together and working around the clock to ensure we’re up and running so you can be up and running. Whatever situation you’re faced with, at any time, you can call our task force and we’ll get you the answers, the listening ear and/or the quick support you need: 888-356-2295 or info@bergankdv.com.

CATEGORIES: COVID-19 | Tax, Audit & Accounting

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