The rules related to obtaining a Paycheck Protection Program (PPP) loan and receiving forgiveness of that loan are changing constantly. As a result, it is likely that by the time this article is published in July, the rules and guidance will have changed significantly. With that in mind, rather than attempt to guess what the future may hold, I thought it would be helpful to provide information about one thing we know (or at least are pretty certain) will not be changing—the need for borrowers to maintain and retain certain records related to their PPP.
In order to obtain forgiveness of the PPP loan, the second to last page of the forgiveness application identifies certain documentation the borrower is required to submit with the loan forgiveness application—that is a completed PPP loan forgiveness application, PPP Schedule A, documentation related to FTEs, and documentation related to non-payroll costs. There is also a list of documentation that a borrower is required to maintain, even though it does not need to be submitted with the forgiveness application—that is a PPP Schedule A worksheet.
After identifying that specific documentation, the forgiveness application then, more generally, identifies a broad swath of documentation and information a borrower is required to maintain. That includes:
- All records relating to the Borrower’s PPP loan and forgiveness applications, including documentation submitted or relief upon in connection with those applications
- Documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan
- Documentation necessary to support the Borrower’s loan forgiveness application
- Documentation demonstrating the Borrower’s material compliance with PPP requirements.
You are obligated to maintain this documentation for “six years after the date the loan is forgiven or repaid in full.” In addition, the forgiveness application says that, during that same six year time period, the borrower is required to “permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.”
As a result of this language, PPP borrowers should know they not only need to provide information sufficient to satisfy the bank (to obtain the initial loan and receive forgiveness, they also need to maintain a much more extensive set of documentation in their files for at least six years. Further, if requested, the borrower needs to allow the SBA or its representatives to inspect the documentation in the borrower’s files during that same period of time.
As a rule of thumb, it is far easier to gather this documentation now – as it is readily available – rather than attempting to recreate a document or track down a document from a vendor years from now.
Broadly speaking, borrowers should be keeping copies of all documentation: (i) reviewed or relied upon when filling out the initial loan application (including eligibility); (ii) reviewed or relied upon when filling out the loan forgiveness application; and (iii) necessary to demonstrate how the PPP funds were spent (i.e., spent on eligible payroll or nonpayroll costs).
In addition, even though the updated PPP FAQs made this less important for borrowers of less than $2 million, all borrowers should create and retain documentation to support their good faith certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
The SBA does not specify the exact set of documentation required to support this certification, but, in general, borrowers should document how, at the time of the original loan application, Covid-19 had impacted their businesses, what the expected future impact was likely to be, what the borrower would have done had PPP funds not been available, and, if possible, why other sources of liquidity sufficient to support ongoing business operations would not have been available without significant detriment to the business.
In summary, while no one knows how the rules for the PPP program may ultimately change, we should expect its forgiveness application will require borrowers to maintain certain documentation related to their loan application, forgiveness application, use of the PPP funds, and certifications made in connection with the same for up to six years. If you have received such a loan, now is the time to gather all of this documentation and put it away for safe keeping.
Attempting to recreate this documentation at a later date is not only impermissible, it is impractical.
J. Mark Dady is an attorney and the Managing Partner of Dady & Gardner, P.A. You can reach him at 612-359-9000 or firstname.lastname@example.org.
The information contained in this article is general in nature and offered for informational purposes only. It is not offered and should not be construed as legal advice.