Suggested Modeling Principles to Support the PPP Necessity Certification

The Actual Impact of COVID and PPP Proceeds

To apply for and obtain a loan under the Paycheck Protection Program (PPP), applicants needed to certify that “[c]urrent economic uncertainty makes this loan necessary to support the ongoing operations of the Applicant.” This is known as the Necessity Certification. There is hardly any constructive regulatory guidance as to how an applicant should support its Necessity Certification. Fortunately for many small businesses, Secretary Mnuchin and the Small Business Administration (SBA) have granted safe harbor to businesses that borrowed less than $2 million, in that the certification will have been deemed to have been made in good faith. However, Secretary Mnuchin and the SBA have vowed (or at least threatened) to review each loan in excess of $2 million for compliance with the Necessity Certification. Based on published data, 28,982 recipients received $2 million or more in PPP loans. Checking each would be a tall order.

This article suggests modeling approaches that are likely to satisfy regulatory scrutiny for businesses that borrowed $2 million or more, notwithstanding how little regulatory guidance exists.

Read the full article in ThinkSet.