Steps Private Schools Need to Take to Qualify for PPP Loan Forgiveness
May 28, 2020
As the COVID-19 pandemic disrupted businesses around the country and Congress stepped in to provide financial aid through the Paycheck Protection Program (PPP), many private schools qualified for help. The attractiveness of the PPP – 100% loan forgiveness – puts the burden on recipients to meet the criteria for forgiveness, and applications must be done in the next three to six months. First, private school leaders need to ask their PPP lenders what is required to fulfill all requirements for loan forgiveness. Generally, criteria fall into three buckets: providing proper documentation, proving economic uncertainty and ensuring all the terms of the loan are met. A brief overview follows:
1. Providing proper documentation
(Please click here for general information on how long certain documents should be retained.)
2. Proving economic uncertainty
In order to qualify for a loan and subsequent forgiveness of the loan, schools will have to prove that they are suffering or will suffer economic uncertainty as a result of the pandemic. They must be able to show that the loan is necessary to support ongoing operations or continue operations in the next school year and that there is a lack of other sources of liquidity. Among the many factors impinging on a school’s finances and causing economic uncertainty are:
3. Providing certifications of good faith to ensure terms of loan are met
If a school does not meet the criteria for forgiveness outlined by its lender and the SBA, its PPP loan may not be fully forgiven. In that case, the school will be charged 1% interest each year on the remaining amount of the loan, which will have to be paid back within two years. Interest and principal payments will be deferred for six months from the date of the loan. However, interest will accrue during that six-month deferment period.
On May 13, 2020 the SBA and Department of the Treasury released FAQ #46, providing clarification on PPP loans regardless of the loan size. Schools and businesses taking a PPP loan with an original principal amount of less than $2 million will automatically be granted safe harbor relief with regard to the “good faith certification” it is required to provide.
However, schools and businesses taking loans greater than $2 million will be subject to a compliance review by the SBA. FAQ #46 states that should a borrower not provide sufficient information for the certification of the loan request, the “the SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness.”
Title IX and Section 504
One of the complications of the PPP loan is that it contained some criteria that private schools ordinarily are not required to comply with as part of their operations. Among them are Title IX of the Education Amendments of 1972, which prohibits sex discrimination in any education program or activity receiving federal financial assistance, and Section 504 of the Rehabilitation Act of 1973,which prohibits discrimination against qualified individuals with a handicap.
Since PPP loans are funded by the government, private schools should be aware that accepting the loan means they are now bound to meet the requirements of Title IX and Section 504. Schools receiving federal financial assistance are also expected to designate at least one employee to coordinate the school’s efforts to comply with and carry out their responsibilities under Title IX and Section 504. Religious schools are not exempt from Section 504 but may apply for a Title IX waiver.
The SBA guidance states that “once the loan is paid or forgiven, the nondiscrimination obligations will no longer apply.” Therefore, schools that pay off the loan quickly will not have to comply with these laws going forward. However, if a school made changes required by these laws in order to accommodate a student while the loan was in force, then it may have to continue to meet these requirements while that student remains with the school.
Schools that received a PPP loan should check with their lenders to be confident they are meeting all the criteria for loan forgiveness. If you have any questions or concerns regarding PPP loan forgiveness, or want more information on how to be sure your school is fully complying with the PPP rules and regulations affecting private schools, please fill out the form below.
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