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PPP Application Self Documentation ( proving "Necessary")


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I have been getting a large number of questions about the ethics of taking a PPP loan, and what the qualifications are.  After way too much thought, I came up with what seems like a reasonable reply.  If a business is eligible for a PPP, and likely forgiveness, it is a complete disservice to the business, self, employees, and customers to not do so.  (This still allows for those who have other reasonable alternatives to not take a PPP, given the Apr 23 "guidance".)  It is no different than decisions a business owner makes daily, such as where the best buy for supplies can be had, recording items for tax deductions, etc.  There is an obligation to keep the business viable, and it is an ethical (or for a corp, a legal) REQUIREMENT.

The one which really made me think (and for good or bad, share with the customer) is an MD who has less income at present, but probably can get by if all goes perfectly.  The problem is, he may get COVID, or staff, or someone have to take leave if a family member is affected (which is out of pocket for at least two weeks).  He was thinking of not applying.  When we chatted about him being easily able to affirm the loan app statements, and the loan making it possible to survive should something else happen, he derided to apply, for his staff and patients' sake.  Note, there is no requirement he seek aid privately, or even come out of pocket.  He realized he could not afford FFCRA PTO while waiting for repayment (without seeking a loan), and had already realized what will happen should he be unable to work.  There is also no requirement to ask for forgiveness, even if foolish not to do so.

The other reality is, we are all going to pay for the billions/trillions in aid, which if you accept that, not taking what is allowed means you pay (at least) twice.

This led to a discussion about the loan app affirmations, and how to ethically live with them.  I found many JD types who have posted their thoughts and opinions online, and finally came up with one which is not only reasonable and thorough, but is in mostly plain language.  I know nothing about the firm, other than this one article, to take it for what it is worth.  I am sharing this because I suspect many here have the same struggle personally, as well as hearing the same from their clients, especially with the press all over the now May 14 "no questions asked give back" date.  The other issue is many applied the first day, before the Apr 23 information was published, and their terms were much looser.  I have seen where a company is preemptively seeking a ruling so they can keep their funds based on the original rules, when they applied, not the Apr 23 rules.

https://www.velaw.com/insights/new-treasury-guidance-on-certification-of-necessity-for-paycheck-protection-program-loans/

"There is no bright-line test for determining the necessity of a PPP loan."

Their section under the heading of "Documenting the Good Faith Determination of Necessity" is the best advice I have found for a business owner to self handle.

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For most small blue collar business taxpayers, these ethical questions that you raise, are not really considered.

For these people the signing of legal documents of any kind is just something you have to do, then you move on.

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4 minutes ago, cbslee said:

For most small blue collar business taxpayers, these ethical questions that you raise, are not really considered.

For these people the signing of legal documents of any kind is just something you have to do, then you move on.

Agreed 100%, normally.  But the "bully" news about the repay if not necessary date, the unknown definition of "necessary", and of the forgiveness criteria makes this not normal.  Even some who are clearly in need are hesitant to let anyone know they received the loan, and are considering payback because the likelihood of the list of loan recipients becoming public (and maybe a neighbor business complaining that they got something the neighbor failed to get).

(Interestingly, I saw an opinion which is precedent for corps and the definition of "necessary", which if applicable, means all corps could easily claim "necessary".)

Having the rules change after a legal loan app and legal loan acceptance are consummated is ridiculous.  I am NOT saying I believe the new rules or suggestions are out of line, but the rules were the rules on April 3, and for the mom's and pop's, they should be able to rely on the documents in their hands, not some later news release that if other funds were readily available, they need to turn back their legal loan or face fines and jail.  We went from "all should apply for the free money", to "you better really have a need or you are getting fines and maybe jail time".

Remembering and documenting the need on April 3, or whatever the application date was, will be tougher 8 weeks after funding when the lender forgiveness app is due.

Real questions I am getting (likely because there is no one source of information, and because my customers know I will reply).

Am I keeping someone else from getting a loan as the news talked about?  (Not likely, there are still funds available at the moment, applications are being accepted, and at least some of those who failed has application/documentation issues, which could have been corrected.  Either way, your obligation to self, employees, and customers, is to remain viable.)

Is there a fixed dollar criteria to prove my need?  (No, you have to affirm whatever is on your application.  How you affirm is up to you, although there are reasonable suggestions which can be followed.)

What can be forgiven?  (No one knows for certain.  The only prudent course is to spend as normal, similar to the prior year, as best you can under current conditions.)

Can my lender not approve forgiveness?  (Certainly.  You should be carefully documenting what you believe are allowable items for forgiveness, as well as a statement, letter, or memo stating why the loan was "necessary".)

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I do not normally offer such detailed suggestions to my customers, as it is not in my normal scope of support.  But, we need each other, so we are sharing, both ways, our experiences, knowledge, and suggestions.

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The next SBA "date" is the 15th, when the forgiveness guidelines/app/something is supposed to be published.  At least, as of today, those who have not yet returned their funds out of fear, and those who were on the fence for applying, have a solid idea of the application process - even though the application process started Apr 3.

While subject to further legislation, whatever comes out, assuming it does, on the 15th, will hopefully be reliable enough for the forgiveness aspect.  Personally, I worry none about the bank/lender, since their only liability is to do the minimum of what the SBA requires.  They are already "held harmless" and likely have already collected their fee.  Those who were able to get approved early are likely in their last week, if not already done with their magic 8.  In this case, being late to the party may be better.

 

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If hesitant to apply for PPP, consider this.  With restrictions being relaxed, there may well be a "bounce" in cases.  Businesses who predicted a steady income during the crisis should consider the costs of having employees on FFCRA PTO.  With employers having to front this cost (until their next 941, filing of a 7200, or possibly via lesser tax deposits), the potential of FFCRA PTO itself could be hardship enough to reasonably attest to a need for a PPP loan.

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Just received and replied to a nastygram from a customer who feels PPP should be for those who would close without it.  I can see their point, but that seems to not be the point of the PPP program, stated anywhere, or shown in the application (Apr 3).

The PPP app (Apr 3) stated there "is" economic uncertainty.  The employer does not have to prove any such uncertainty in their own case.  The employer has to agree to use the funds to "support ongoing operations".  Nothing about only if people would be laid off, or a business drop.  The funds must be used to "retain workers and maintain payroll", and for other allowed items.  Nothing about using the funds to "prevent" loss of workers or payroll reductions...

So far, the only fraud items I have noticed are the couple of dolts who were arrested for not having employees at all.

I concede, some businesses may end up not in pain because of COVID, and may even profit.  But, the PPP process has no financial requirements as part of the application, nor is a statement of projected loss required.  Legally, it is a good argument that all who manage a qualified corporation who cannot show taking a PPP would cause harm, breech their fiduciary duty if they pass on the PPP.  (I expect those who were goaded in public can argue loss of goodwill, but many gave back their loan our of pure fear only, including mom and pop's.)

Interesting discussion for certain, as it forces people to see the purpose of business is to profit.  The morality comes in as to how much profit to seek, and what to do with those profits.

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Is there any scenario where a business, otherwise qualified, could not attest they want to maintain payroll (at the least)?  If the answer is no (or very limited), then there is no (or very limited exceptions) otherwise qualified business who should not apply for a PPP.

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I am not special/diffenent than any other business, other than maybe unusually and brutally candid.  Looked at the situation, applied, and was finally funded.  I can easily live with my guesses as of Apr 3.  I know there will be less income for several years.  I would have had to skip a payroll or two.  Instead, I did not have to skip payroll, and because I "can" live without it, I will not go forward with a planned price increase for 2021, even though the PPP will not cover that "loss".  I actually found it necessary to increase payroll for the short term, so I could devote the time needed to deal with the support issues and program changes caused by PPP, FFCRA, Retention Credit, etc.

I struggled a short time with the morality.   My personal issue was addressed as I could not find an appropriate reason not to apply.  We are all going to pay, and there is no reason not to limit our costs to the best of our ability, at least under our current system.  Self, family, employees, and customers deserve our best efforts.

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Just reminded of the new WC rules, presumptive WC eligibility for employees with COVID (at least 8 states so far).  For CA, the employer has a high, if not impossible burden, to prove COVID was caught away from work.

Another cost necessary for employer planning due to COVID, if not from claims against own policy (experience rating adjustments), there could well be a price increase going forward for all in "presumptive" states.

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14 hours ago, Medlin Software said:

Just reminded of the new WC rules, presumptive WC eligibility for employees with COVID (at least 8 states so far).  For CA, the employer has a high, if not impossible burden, to prove COVID was caught away from work.

Another cost necessary for employer planning due to COVID, if not from claims against own policy (experience rating adjustments), there could well be a price increase going forward for all in "presumptive" states.

And yet WC is not a payroll cost for purposes of the PPP?  At least, that is what I understood from an earlier discussion on here. 

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3 hours ago, Gail in Virginia said:

And yet WC is not a payroll cost for purposes of the PPP?  At least, that is what I understood from an earlier discussion on here. 

Some think yes, some think no.  One issue is whether or not it is considered a state or local tax, and that some states have the employees at least partially pay.  Another issue is the timing of the WC premium payments, and whether or not they fall within the forgiveness guidelines (as of yet unpublished - have not checked today).

As for application, anyone asking for under 2 million, is presumed to be necessary, so the intent was, and now is, to get money to all businesses who properly qualify.  Clearly, that makes it foolish (at best) for all who meet the numbers requirements not to apply...

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16 minutes ago, Medlin Software said:

Some think yes, some think no.  . . . . 

As for application, anyone asking for under 2 million, is presumed to be necessary, so the intent was, and now is, to get money to all businesses who properly qualify.  Clearly, that makes it foolish (at best) for all who meet the numbers requirements not to apply...

I haven't seen anything that supports WC being a qualifying expense.

Given your previous lengthy postings about ethical considerations, if a business doesn't really need the PPP funds in order to survive, wouldn't the ethical and moral

thing to do be to return the PPP funds so that some other business that really needs the funds be able to receive that money ?🤔

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13 minutes ago, cbslee said:

I haven't seen anything that supports WC being a qualifying expense.

Given your previous lengthy postings about ethical considerations, if a business doesn't really need the PPP funds in order to survive, wouldn't the ethical and moral

thing to do be to return the PPP funds so that some other business that really needs the funds be able to receive that money ?🤔

SBA is supposed to release forgiveness information today.  Have not looked yet.

The ethical part is interesting, and something I fought with.  Business is to profit, and to survive.  There is still so much uncertainty, no business can logically say they will have no need at some point.  (Noting, there is no "current" qualifier for the PPP.)  If it turns out the amount was not needed, it can be used in the community, or in some other way to help others.  The trend of states trying to shift medical liability to employer's WC policies is a HUGE potential burden on all employers, as it is a shared pool of sorts...  Same with UI, we are all going to pay for the current UI boom, and will also have to make up for the UI costs of failed businesses or any new who get away with UI dumping).

What is done with the profit is the ethical aspect, not making the profit.  if that seems logical, then a business not taking advantage of all aid, sales, discounts, etc., is foolish at best.  A business which may have made it without aid could choose to give pay increases, add benefits, whatever they wish.  The business could donate their new found savings to a local charity in need, food banks are in a bad way at present.  Those running a corporation have fiduciary liabilities, failing to take available aid could be an actionable personal liability.

A fair comparison is how many returned their stimulus payment to Uncle Sam?  Not likely many at all.  Those who did not need the funds may even have donated their stimulus amount, or maybe just spent it locally.

As of a day or two ago, roughly half of the second wave of PPP funding is STILL AVAILABLE.  Given that a second round was funded, all who properly apply have a realistic chance of being funded, either with current funds, or more rounds of funding.  I saw one article which stated a large number of applications (I don't think it was 50%, maybe 30 to 40%?) were declined because of documentation issues.  It does not appear anyone who properly applied early on has not received funding by now.  Applications are still being encouraged and rejected.

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1 hour ago, cbslee said:

Every client that has a PPP Loan will be receiving their lender's version of this form to fill out, so while this will be a good reference

it will not be the form our clients will actually fill out.

I assume that just like the SBA loan form, the lenders will have their own version, and I bet you will be able to fill it out online and upload supporting documentation.

Tom
Modesto, CA

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