Article

PPP loans: important economic need and accounting considerations

April 27, 2020

Baker Tilly has a comprehensive set of solutions available to assist qualifying businesses that have received, or will receive, loan proceeds that may be eligible for forgiveness under the Paycheck Protection Program.

Section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), provided funding to the Small Business Administration (SBA) totaling $349 billion for loans available to qualifying small businesses. These Paycheck Protection Program (PPP) loans have several favorable characteristics, including a low interest rate, no origination fees, no collateral requirements and the possibility of forgiveness. Since the program launched on April 3, overwhelming demand quickly depleted available funding and prompted Congress to add an additional $310 billion as part of the Paycheck Protection Program and Health Care Enhancement Act, enacted on April 24.

Not surprisingly, questions about this novel loan program abound. Primary among them are: (1) how does a potential qualifying applicant (or current recipient) assess or demonstrate “economic need”; and (2) how does the PPP loan recipient consider qualified expenses when seeking forgiveness?

Determining economic need

Initial regulations issued by the SBA on April 15 require borrowers to certify in “good faith” on the PPP loan application that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” The borrower also needs to certify that the funds “will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments.” Apparently recognizing the ambiguity of the required certification, the Treasury Department updated its PPP loan