Loan Requirements and Forgiveness: SBA Paycheck Protection Program
5/11/2020
SBA Paycheck Protection Program Field Blue

NCFC Share Best Practices for PPP Loan and Forgiveness

Whether members worked with GreenStone or any other financial institution to secure a loan through the Small Business Administration (SBA) Paycheck Protection Program (PPP), there are several details and noteworthy considerations to acknowledge - particularly for corporative structured businesses. 

The National Council of Farmer Cooperatives (NCFC) provides these considerations:

  • The PPP launched on April 3 with very few parameters regarding eligibility. Subsequently, the SBA announced it will audit all loans of $2 million and above and may audit loans under $2 million.
  • According the SBA, borrowers must be able to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” Borrowers that applied for a PPP loan prior to April 23, 2020, may repay the loan in full by Thursday, May 14, if they believe they could not make such certification in good faith. Borrowers could be subject to criminal investigations and civil proceedings under the False Claims Act. 

NCFC PPP Webinar:

The following is a summary of the remarks given in the webinar and is not intended as legal advice. Consult your own legal counsel for advice on your particular situation.

On May 5, NCFC hosted a webinar on the PPP program requirements. Ken Logsdon of Dorsey &Whitney and Levi Smith of Fredrikson & Byron took questions on the PPP program and the potential for audits. Watch a recording of the webinar here: https://youtu.be/usTwAyIZEL8.

Suggested Best Practices Presented in the Webinar:

Conduct an analysis and create a contemporaneous record using the information available today. Produce an internal memo or white paper for review by your organizations board/management team. The more quantitative the analysis, the better.

In the memo, consider including three types of financial projections: base case, best case, and worst case -- with and without PPP funds. Include any other sources of revenue.

  • Consider that this may be a “U-shaped” recovery and consider the long-term impacts on the co-op’s finances.
  • Consider economic impacts on suppliers and customers and their ability to pay on a timely basis.
  • Consider other factors, such as the potential for a COVID-19 outbreak at the co-op’s processing facility or other workplace and the potential impacts on continued operations.

Distribute the memo to the board/management team; conduct a board/executive meeting; discuss the memo; and memorialize the discussion in the minutes. Adopt a resolution considering current facts and circumstances.

In addition, consider whether there could be any “bad facts.” For example, did the timing of your bonus payouts coincide with when your organization received the loan funds? This could weigh toward returning the loan.

Be able to explain why your business is taking the funds if it has a well-capitalized parent company. Pursuant to SBA guidance, any such cooperative should consider sources of liquidity available to a parent company that could be used to support the organization. If such sources of liquidity are adequate and available under terms not significantly detrimental to the business, consider returning the loan. 


Q&As from the NCFC PPP Webinar:

Q: Should the cooperative have a separate bank account for PPP funds?
A: Nothing requires separate segregated fund, but it is advisable. Forgiveness is closely tied to use of the funds and by having a separate account the borrower can show money was used for payroll, rent, etc.

Q: What if a cooperative pays patronage at the end of year? Can the SBA argue the cooperative really did not need the PPP funds?
A: This fact would be part of a facts and circumstances analysis by SBA. The co-op should be able to highlight the reasons why projections showed the co-op thought it would need the funds and that it considered many factors.

 

Loan Forgiveness:

If you plan to apply for debt forgiveness, you must ensure your organization is prepared to request forgiveness. Because the forgiveness details may evolve over the coming weeks, we encourage you to seek the latest information and necessary details from the SBA website

 



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