What does economic uncertainty mean? That ambiguous and subjective certification from your Paycheck Protection Program loan application has been a hot topic over the last week or so. The SBA has published some additional FAQs seemingly in response to the public outcry around some publicly traded companies taking out large PPP loans while so many small businesses were unable to access the program. The concerns being raised have been around how the limited guidance published may be applied to all PPP recipients, not just larger companies.
The SBA has promised to provide additional guidance around what this certification means and what documentation a business should be prepared to provide in the event that their loan is ever reviewed in the future. In the interim here are a few things you should consider having on hand should you ever have to support your PPP loan application:
1. A worst case projected cash flow forecast or model to show how the essential the PPP funds could be to the ongoing viability of your business and the retention of your employees.
2. How much your employee acquisition cost typically runs. If your employees were to walk away while your operations were temporarily suspended what is the average cost to your company to recruit, onboard, and train new ones?
3. How did your access to cash look on the date you applied for the loan? One of the factors that could be looked at is how much cash you had on hand and available on a line of credit.
4. What the economic forecast looked like for your industry and geographic area at the time you applied will also likely play a role in all of this so you’ll want to have a written narrative around what things looked like at the point you made your loan request.
Overall, it may be premature to spend a lot of time developing this supporting documentation until we have guidance from the SBA, but right now is a good time to at least start pulling together the documentation you may need to prepare your forecasts and other calculations in support of the economic uncertainty your business faced when you chose to apply for the PPP loan.
We understand that the lack of guidance is resulting in difficulty making critical decisions on important business matters and we are eagerly waiting for the SBA to provide this so that we can pass it along to you.