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COVID-19: PPP Loan Funding is Not Federal Assistance

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There are certainly more questions than answers related to the CARES Act funding being issued as of late.
May 6, 2020

There are certainly more questions than answers related to the CARES Act funding being issued as of late. In particular, the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program, both administered by the Small Business Administration (SBA), have left recipients with many questions, such as whether or not loan proceeds under these two programs are considered federal assistance.

Generally, when an organization expends at least $750,000 of federal funding assistance within that entity's fiscal year, a single audit or program specific audit in accordance with the Uniform Guidance is required. The Uniform Guidance is simply a set of authoritative rules and regulations about federal grants from the Office of Management and Budget (OMB).

The SBA has stated that PPP loan funds are not considered to be federal assistance. To the contrary, EIDL loan proceeds are federal assistance, should be included on the recipient’s Schedule of Expenditures of Federal Awards and are subject to single audit, when required.

The SBA’s PPP loan program is administered under Section 7(a) of the Small Business Act, which is the section that provides regulations for its guaranty loan program. Under this Section, lenders disburse private financing for 7(a) loans to recipients. Therefore, the PPP program is not a federal assistance program or subject to single audit for loan recipients. The SBA is still in the process of removing the requirement for single audits for all of the SBA’s 7(a) guaranty loan programs from all relevant contract templates so be cognizant of this fact when reading loan documents and other contracts.

As more guidance is released, RubinBrown will provide updates to keep federal funding recipients informed.

 

Readers should not act upon information presented without individual professional consultation.

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

 

 


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