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Real estate companies and the PPP: Revisit your certification and document your rationale

May 7, 2020 / 4 min read

Real estate companies are asking good questions about the SBA’s PPP loan program, particularly about borrower certifications. If you’re thinking about or have received a PPP loan, consider these factors when documenting your rationale.

Real estate companies that successfully obtained one of the 1.6 million Paycheck Protection Program (PPP) loans through the first round of the CARES Act funding have raised some questions and concerns following later guidance from the Small Business Administration (SBA). Many of those questions and concerns are about the certifications made during the application process.

In order to be considered for a PPP loan, you had to certify in your application that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” 

The SBA has provided further guidance on what this certification means and how to support it with its FAQ document. In that document, Q&A #31 asks, “Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?”

In its response, the SBA states 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.”

As the business owner, perhaps you consulted with your CFO, external CPA, or legal counsel when you completed the loan application. At this point in time, we would encourage you to take a few moments to document your thought process as to why you applied for a PPP loan.

At this point in time, we would encourage you to take a few moments to document your thought process as to why you applied for a PPP loan.

Here are a few important things to consider as you prepare to put your rationale to paper (or monitor) and gather your supporting documentation:

The SBA guidance notes that borrowers should be documenting in a memo, with additional support, their rationale behind signing the certifications.

After you’ve revisited your loan application and your documentation, review Q&A #31. Do you feel that your real estate company meets the certification requirements? If not, you’re allowed a safe harbor if you return the loan funds by May 14, 2020.

A few other points of guidance:

If you conclude that retaining the funds for use in your business is your best option, consider the following steps — immediate steps — to plan for the future:

Keep in mind, your loan application is available to the public under the Freedom of Information Act.

As you review the SBA’s guidance and your loan application, document your thoughts now in case you’re asked to demonstrate to a reviewer later why you need the funds. And if, upon a closer look, you no longer believe you meet the SBA’s standard, be sure to return the money by May 14. Further, note under FAQ #39, the SBA has now decided to review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.

As always, if you have questions, feel free to give us a call.

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