SBA Paycheck Protection Program Loan Forgiveness Considerations
October 1, 2020
The Journal Record
With the deadline to apply for a loan under the Paycheck Protection Program ("PPP") having passed on August 8, PPP borrowers ("Borrowers") have entered into the next phase of issues and concerns regarding PPP loans. Many Borrowers who received PPP loans have likely spent most, if not all, of the funds and are now considering how to seek forgiveness of the loan in accordance with the CARES Act, which includes submitting Small Business Administration ("SBA") Form 3508.
Borrowers receiving large PPP loans should expect delays in approval, and possible denials, of their loan forgiveness requests. The SBA has stated it will review all PPP loans in excess of $2 million and has warned that businesses that had substantial access to liquidity may not be able to obtain loan forgiveness. Borrowers who received a PPP loan in excess of $2 million should prepare a good faith certification to submit to the SBA.
If you have been notified that your business was ineligible to receive the PPP loan or is unable to obtain forgiveness of said loan, you will have 30 days to file an appeal. If you received a subpoena or notice of an investigation into your PPP loan, this does not necessarily mean civil or criminal charges will be brought against you. However, any Borrower receiving such notice should compile all documents submitted in connection with the PPP loan, as well as records of expenses paid using PPP funds.
Any Borrower, or any person who is looking to acquire a Borrower who was a recipient of a PPP loan, should take the forgiveness of an outstanding PPP loan into consideration prior to entering into a purchase and sale agreement. Borrowers should be aware that their lender may require that the PPP loan be repaid in full with the proceeds from any sales transaction. If required, the Borrower may be unable to recognize the forgiveness benefits of the PPP loan. If the lender does not require the PPP loan to be repaid, the purchaser may be able to receive the same forgiveness benefits as the original Borrower. However, there are factors to consider when determining how to allocate the risk of a forgiveness application for the PPP loan being denied, as well as how to account for the value of the PPP loan in the purchase price of the business.