Navigating PPP Loans: What Government Contractors Need to Know

By Jacob Barclay
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With the rollout of the Paycheck Protection Program (PPP), small businesses, including government contractors, have been actively seeking clarity on how to navigate the process, particularly with the second round of funding available as of April 27, 2020. Many are carefully evaluating their options, including whether to retain or return PPP funding before the May 7 deadline to ensure compliance with the Small Business Administration’s (SBA) guidelines for good-faith certification.

Key Considerations for PPP Loan Recipients

Government contractors face unique challenges when interpreting PPP loan requirements. The updated SBA FAQs (April 28, 2020) have added complexity to this landscape, especially concerning the necessity certification.

FAQ Highlight: Economic Necessity
One key question addressed in the FAQs asks whether businesses with access to other liquidity sources qualify for PPP loans. Borrowers must assess whether their loan request is genuinely necessary, considering their current business activity and access to capital. Publicly traded companies or those with substantial market value may find it difficult to justify their need for PPP funds in good faith.

Compliance and Financial Ramifications

For government contractors, understanding compliance extends beyond the SBA’s certification requirements. According to Defense Pricing and Contracting (DPC) clarifications, forgiven PPP loans cannot be freely used. Contractors must account for PPP credits under FAR 31.201-1, ensuring the government receives appropriate credits or billing reductions for allowable costs.

Common Challenges for Government Contractors

Contractors are navigating several complex issues, including:

  • Certifying Economic Necessity: Ensuring the loan was necessary at the time of application.
  • Size Eligibility: Determining eligibility requirements accurately.
  • Audit Risk: Borrowers receiving over $2 million are at higher risk of audits.
  • Accounting for Loan Proceeds: Segregating PPP funds, costs, and future credits for government billing.

Expert Guidance is Key

As government contractors face mounting uncertainties, legal and financial advice is crucial. To navigate these challenges, consulting experts familiar with federal regulations is highly recommended. Resources such as ReavesColey can provide tailored guidance on PPP-related compliance issues.

By staying informed and proactive, contractors can ensure they remain compliant while effectively utilizing PPP resources to support their operations during these unprecedented times.

Cheers,
Jacob Barclay