Broker Check


May 13, 2020


Update on SBA Paycheck Protection Program Guidance

(As of May 11, 2020- SBA IRA revisions occur often)


The Small Business Administration and Treasury Department continue to release new interpretations or further revelations on the details of the Paycheck Protection Program as they have almost daily since the program’s inception. It is extremely important for those who were approved and received PPP funds to evaluate their situation considering the most recent statements. For those who have not yet applied for SBA PPP funding, be sure to review this information prior to submitting your loan application.

Probably the most controversial development is the regulatory focus and interpretation of the required attestation statement that the “uncertainty of current economic conditions makes the loan request necessary to support the ongoing operation of the business”. While the program terms state that borrowers do not have to exhaust all other funding sources first, recent statements have indicated that audits will look at the possible other sources of funding that were available to borrowers at the time of application.

Unfortunately, the CARES Act is replete with ambiguity.  For instance, even the above highlighted verbiage contains five subjective evaluations within one sentence.

  • Uncertainty – how exactly are we to define uncertainty? We surely know more now than we did the last week of March, but we do not know if there is any less uncertainty now.
  • Economic conditions – does this apply to the Global community, the United States, our State or our specific conditions?
  • Necessary – how do we determine necessary considering uncertainty?
  • Support – loans can support operations, what level of support is considered necessary in view of events leading up to the application for the loan?
  • Ongoing Operation – what level of operation are we looking at? Maximum capacity operation, partial operation considering social distancing, or minimal operations just to keep the entity ready to resume full operations

Because of this ambiguity and subjectivity every business should document in detail the economic circumstances at the time the application was submitted.  Keep in mind that any examination of the reasonableness of your request for a PPP loan will likely be months or years down the road.  With 20 / 20 hindsight things will probably look a lot differently than they did in late March or April.  For your own protection, it is imperative that you document your feelings, concerns, and business issues as of the beginning of this process.

For example, at the time many of you prepared your PPP loan application, there was great uncertainty of continued operations because mandated shutdowns were taking place. Along with the uncertainty of continued revenue during a shelter in place mandate, other possible issues that might have caused economic harm include the possibility of key employees contracting COVID-19 and being unable to work, and employees who lost childcare and were unable to work. Many companies anticipated increased cleaning and sanitation costs and increased pay expenses in order to entice employees to continue to work. Other economic uncertainties included the time horizon of business closure and reductions when the outlook for a vaccine was a year at a minimum. Business owners should also document their expected increased legal and professional fees to navigate the many changes during this period and to comply with the new CARES Act and other relief measures. In addition, consider recording the need to have funds for both daily operational needs and capital needs of the coming periods. Documenting UNCERTAINTY is the key. Hindsight is 20/20 so this documentation should take place now while you can remember the unique experience we all went through this spring.

Your 8 week PPP period begins on the disbursement date. Make note of that period and carefully document all expenditures from these funds. Gather receipts to show that your spending was from the allowable categories. At the time you apply for forgiveness you will need to prove that 75% or more of the funds were spent on payroll items including gross wages, state unemployment tax, health insurance, and retirement benefits. The remaining funds can be spent on utilities, rent, and interest on debt obligations.

Be prepared to show information on your employee headcount changes at the time you apply for forgiveness. You must compare the FTE headcount for the 8 week period to the FTE headcount for the period of 2/15 – 6/30/19 or the period 1/1/ - 2/29/20. A decrease will reduce the amount forgiven.

In the same way, you will also need to show that no employee’s wages have decreased by more than 25%. This is done by showing the average weekly pay per employee for the 8 week period compared to the average weekly pay for that same employee for the period 1/1 – 3/31/20. The best practice is to only include employees who were active during the entire 8 week covered period. If any employee experienced a reduction in pay greater than 25%, this will reduce the amount of your PPP loan that is forgiven. An exception applies to the reduction for both headcount and salary calculations if these are corrected by 6/30/20.

Your team at Danny Cochran Wealth and Tax Strategy is here to help you navigate these issues. We are available to assist with your Paycheck Protection Program loan application, loan forgiveness application, and intermediate concerns such as documentation, appropriate spending, and other issues. Let our experts guide you through the economic challenges of 2020.