President Trump signed the Paycheck Protection Program and Health Care Enhancement Act (?Enhancement Act?) on April 24th.

The Coronavirus Aid, Relief, and Economic Security Act (?CARES Act?) provided a $2.2 trillion stimulus package that allocated funding to small businesses through new and enhanced loan programs administered by the Small Business Administration (?SBA?). The PPP was one such program designed specifically to provide eligible small businesses immediate relief if they believe that ?current economic uncertainty? of the COVID-19 pandemic makes such a loan for their business ?necessary to support their ongoing operations,? and were willing to certify to the lender to that affect. Unfortunately, the initial guidance promulgated by the SBA did not provide any definition regarding the nature or extent of the required impact to operations or the ?current economic uncertainty? that would make the loan request ?necessary to support ongoing operations.?

On April 23rd, the SBA updated its Frequently Asked Questions Document to add FAQ 31. The new FAQ provides much-needed clarity regarding program qualifications specific to businesses with access to other sources of liquidity to support their ongoing operations. Any business that received a PPP loan prior to the issuance of this new guidance and who now believes that they do NOT demonstrate the necessity for the loan, can repay the loan in full by May 7, 2020. Any business that does so will be deemed by the SBA to have made the required good faith certification on their PPP loan application.

Recent news articles about recipients of these loans point out potential risks of receiving these funds loans as they will be subject to regulatory and public scrutiny. Loan recipients will not remain anonymous as EINs will be made public. We anticipate heightened government scrutiny will be forthcoming to investigate potential fraud and abuse. Businesses who have received PPP loans and are later found to have not qualified under the eligibility rules and/or businesses who do not use the funding in accordance with the terms of the program, could be subject to significant legal or regulatory consequences. Further, businesses may experience reputational damage for having pursued these loans.

Given the revised guidance issued by the SBA and the pending May 7, 2020 deadline for returning loan proceeds, you are well advised to carefully review your company?s financial situation and reconsider the relief you may have already received with a PPP loan. Specifically, consider whether your circumstances fall within the spirit and intent of this economic relief program. If you do receive and keep PPP funding, it is critical that you maintain complete and accurate documentation to support your eligibility for such funding, the specific use of these funds, as well as your qualifications for forgiveness under the terms of the program. This documentation will be crucial were your business to be audited and/or investigated. The idea is that this defensive documentation will greatly minimize your potential exposure to fraud and abuse allegations related to your participation in this loan program.

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These are challenging times. If you would like our assistance with evaluating whether the PPP or other small business loan programs and/or economic relief measures are appropriate for you, please contact us.