The Paycheck Protection Program (PPP) Flexibility Act amends the Small Business Act and the CARES Act, modifying certain provisions in an attempt to make it easier for businesses to have their PPP loans forgiven. For many companies these are welcome changes. However, there are few things to bring to your attention which could lead to unintended consequences in limited cases.

The one constant in the PPP is that the program will change. We do not expect this recent update to be the final PPP outlook, and we anticipate changes to the forgiveness form, as well as more regulatory interpretations that will impact the Program.

screenshot of provisions in the PPP Flexibility Act

Unintended Consequences
Although there is optionality and relief through these programs, companies should be careful on their balance sheets and controls. These programs are creating liabilities on the balance sheet.

  • If you have required key metrics for licensing agencies, vendors, customers, and/or bank debt covenants, you can accidentally run in to technical violations.
  • Additionally, if you have various levels of debt seniority (such as certain mezzanine debt), there may also be problems with respect to debt subordination clauses that could create a technical default in the terms of your note.
  • Further, many of these programs (as well as the work-from-home model accounting departments are operating in) are creating the need to override companies’ control environment in order to mechanically execute some of these programs.
  • Of course, if companies have financial statement audits, these issues can create future audit complexity.

How Can We Help?
These changes now allow business owners the time to make strategic business decisions versus being reactive to time constraints. Reach out to the PKF Texas Entrepreneurial Advisory Services team with questions early in the process and if you need assistance in adapting controls, pro-forma-ing financial statements for key stakeholders and/or scenario modeling.

Byron Hebert, CPA, CTP
Chief Growth Officer & Practice Leader, EAS
BHebert@PKFTexas.com
www.PKFTexas.com/ByronHebert

Matt Goldston, CPA, CVA, CM&AA
Director, EAS
MGoldston@PKFTexas.com
www.PKFTexas.com/MattGoldston

Sam Razmandi, CPA
Director, EAS
SRazmandi@PKFTexas.com
www.PKFTexas.com/SamRazmandi

Danielle Supkis Cheek, CPA, CFE, CVA
Director, EAS
DCheek@PKFTexas.com
www.PKFTexas.com/DanielleSupkisCheek

For more information related to COVID-19, visit our website’s Resource Center at: www.PKFTexas.com/COVID-19.