Paycheck Protection Program (PPP) loans aren’t a blank check. They can be used only for certain expenses like payroll, mortgage/rent, and other basic needs. And without following proper steps, they can’t be forgiven.
While that might worry borrowers, it should also alarm lenders. Documentation for PPP loan forgiveness must be submitted in June. Afterward, those loans will be stuck on balance sheets.
Is your credit union prepared for that?
Here’s how to handle all the paperwork quickly, easily, and at scale.
PPP Eligibility Requirements
Federal guidance on PPP lending has been inconsistent at best. The legislation and funds were rushed and uncoordinated, and both borrowers and lenders have been unclear on specifics about eligibility, amounts, timelines, and forgiveness.
To qualify for SBA PPP loans, applicants must meet the following broad criteria:
- Employ 500 or fewer people (per location for restaurants and hospitality)
- Classify as one of the following:
- Small business
- S corporation
- C corporation
- LLC
- Private nonprofit
- Faith-based organization
- Tribal group
- Veteran group
- Self-employed, independent contractor, or sole proprietor who files an IRS Schedule C with their Form 1040
- Verify their business doesn’t include:
- Illegal activities
- Owners more than 60 days delinquent on child support payments
- Farms and ranches
- Sex work
- Lobbying
- Gambling
Applicants who were already approved for PPP loans may return their loan by May 7th without facing investigation or prosecution. Additional guidelines suggest that organizations with adequate capital, borrowing ability, or other resources are not eligible. (For example, Shake Shack, Ruth’s Chris Steakhouse, and The L.A. Lakers qualified before these additional guidelines were created.)
PPP Good Faith Certification
If all other eligibility requirements are met, a business must also certify in good faith that they need the loans. This good faith certification asserts that there is an economic need for the loans and that they will be used only for specific purposes.
This means that all borrowers must certify in good faith that:
- Current economic uncertainty makes the loan necessary to support your ongoing operations.[1]
- The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
- Applicant has not and will not receive another loan under this program.
- Applicant will provide documentation to the lender that verifies the number of FTE employees on payroll, the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after receiving the loan.
- All information provided in the application and supporting documents must be true and accurate. They must match documents submitted to the IRS, and the lender must be allowed to share the information with the SBA’s authorized representatives for review and compliance.
Currently, SBA loans require consistent documentation to qualify for forgiveness. That documentation must be submitted in full by June 30th, and it must pass regulatory scrutiny.
Improperly used loans may not be eligible for forgiveness, and businesses that don’t meet “good faith” certification will be investigated and prosecuted by the SBA and the Treasury Dept.[2]
Additional Resources
With the help of Capiform, we put together a checklist for credit unions and borrowers. It outlines who’s eligible, what the loans can be used for, and how to track and document loan activity for SBA forgiveness.
[1] https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf
[2] https://www.natlawreview.com/article/covid-19-update-federal-investigators-prepare-to-investigate-and-prosecute-fraud
Check out the PPP loan forgiveness checklist here! (And don’t forget to sign up for the webinar!)
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