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Don’t Step into the PPP Loan Minefield Without a Map

May 4, 2020

The passage of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) has made available now $659 billion in potentially forgivable loans to small businesses via the Paycheck Protection Program (PPP). Many companies are applying for PPP loans to mitigate the impacts of the COVID-19 pandemic.

With federal money comes increased federal scrutiny, and there are several minefields you should be aware of so you and your company can avoid civil, and potentially criminal, penalties down the road.  When federal dollars are at issue, no loan amount is too small to be ignored by federal agencies and prosecutors.  Ask yourself if your business truly needs, or could conceivably need, the loan funds.  Is there a public relations impact on your business if, or when, the public learns of your loan?

One of the crucial portions of the PPP application form is the 10-part certification page.  Each of the ten certifications require the applicant write their initials next to it, swearing that each certification applies.  In order to comfortably and honestly fill out the application, the applicant should undertake the proper due diligence and ask questions to verify that the information being certified is correct.

Two of the crucial certifications are the second and third, which require the applicant to swear that the “current economic certainty” makes the loan necessary to continue operations of the business, and that the loan, if received, will be used to “retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments.”  There has been little guidance regarding the language in the certifications, so make sure you honestly and carefully assess and initial each one.

We recommend heavily documenting your records during each step of the application and loan process, describing in detail what was happening at the time of the certifications.  What was going on with your business at the time you filled out the application?  Was your state under a stay-at-home order, impacting customer traffic and cash flow?  Was there a shortage of goods crucial to your business, or was one projected?  Had employees stopped coming to work?  You should document the types of circumstances which motivated and supported your application.

Once you have completed the application, and if you are approved for a PPP loan, carefully document each dollar that gets spent, including descriptions of what the loan money was used for.  Did you make employees whole who lost hours and pay due to closings or illness through back pay in order to “retain” them?  Did you reward employees for continuing to work at a high level in bad times?  Even obvious expenditures such as rent or utility payments should be accompanied with a note indicating why the loan proceeds were necessary to cover that expense.

Audits and investigations could come years down the road, and it is far better to have documented what was going on in the moment than to try to rebuild the situation from memory.


If you have any questions or need legal support ,  please contact:

Richard Davis at 205-868-6044 or rdavis@starneslaw.com

Jay Ezelle at 205-868-6025 or jezelle@starneslaw.com

John Geer at 205-868-1808 or jgeer@starneslaw.com

Trip Umbach at 205-868-6072 or tumbach@starneslaw.com

Warren Butler at 251-405-5065 or wbutler@starneslaw.com

Trey Wells at 205-868-6083 or twells@starneslaw.com

Stephen Still at 205-868-6085 or sstill@starneslaw.com


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This information is not intended to provide legal advice, and no legal or business decision should be based on its content. No representation is made that the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers.  Read full disclaimer.

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