Documenting PPP “Need and Liquidity”

This article was updated on May 1, 2020.  Updates to this article will be made as new information becomes available.

Schneider Downs continues to track the evolving landscape of Federal financial programs offered due to the disruption of the coronavirus (COVID-19).

Over the past week or so, there has been additional attention and scrutiny surrounding the required PPP loan certification that states that “"[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  The SBA has since added that “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

These items are specifically addressed in the SBA’s PPP FAQs #31 and #37.  The SBA then added FAQ #39 that indicates that all loans above $2 million (and other loans as necessary) will be reviewed.

While detailed guidance surrounding the interpretation of these statements and implementation of the review procedures has not been provided, borrowers should retain solid documentation and consider the following in determining if they can respond in good faith that the loan request is necessary:

  • Current business activity, which may be supported through comparable sales and results between the eight-week loan period (likely projected) and the prior year and prepare related projections/budgets.
  • Future business activity, which may be supported through updated projections/revised budgets.
  • Business decisions that have been made in response to the pandemic.
  • Alternative business decisions that would have been made had a loan not been received (i.e. layoffs, pay cuts).
  • Based on the above points, consider what would have happened “but for” COVID and then “but for” PPP.  This would include an analysis/comparison of: a.) prior year same period results; b.) budgets for the eight-week loan period prior to COVID; c.) budget of what was expected to happen with COVID, but without PPP; d.) budget with COVID and PPP.  If (c) has a material deterioration in financial results compared to the other analyses (or similar bottom line results, but requires significant reductions in employees), this may indicate that the PPP loan was necessary.
  • Access to other sources of liquidity to support their ongoing operations, like working capital (cash) and debt facilities (line of credit).  
  • Other documentation that should be maintained, including evidence or correspondence detailing operational, cash flow, collections, staffing, payroll and industry issues.

The list above is not all-inclusive and borrowers need to consider their facts and circumstances, but companies that are not in compliance may be subject to criminal penalties for falsely certifying the need for funds.  Loans can be returned prior to May 7, 2020 and will be deemed by the SBA to have made the required certification in good faith.

If you have any questions regarding the PPP, first reach out to your bank and other lenders.  If you need more information, please reach out to any of your contacts at Schneider Downs or contact Joel Rosenthal (

Please visit our Coronavirus Resource Center for related content.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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