If you have a client that obtained a PPP loan before the most recent guidance (that was issued on 4/24/20; FAQ 31 and SBA response, see below) and has a line of credit at a banking institution that is not fully utilized would the client be obligated to return the PPP loan by May 7, 202031 Question: Do businesses owned by large companies with adequate sources of liquidity to support the business's ongoing operations qualify for a PPP loan?Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act - see definition below), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.Lenders may rely on a borrower's certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.3(h) For purposes of this Act, the term "credit elsewhere" means the availability ofcredit from non-Federal sources on reasonable terms and conditions taking into consideration theprevailing rates and terms in the community in or near where the concern transacts business, orthe homeowner resides, for similar purposes and periods of time------------------------------
Mark Dolinger CPA
MSD CPA, PC
Plainview NY
msdcpa@outlook.commsdcpa@outlook.com
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