Here’s an update on some guidance that came from the SBA yesterday and today.
In an earlier email alert, we referred to this link from the U.S. Dept. of Treasury compiling the Paycheck Protection Program information, forms, guidance, and government’s answers to Frequently Asked Questions (FAQs) in one place.
Some supplements to the existing FAQs and Rules published by the SBA came out yesterday and today. They are published on the U.S. Treasury page referenced above, and, for convenience of reference, the specific links to the most recent FAQs and Interim Final Rule supplement are below.
The effect of the above supplement to the FAQs is to add Question and Answer 31 which addresses whether businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan. The SBA answers:
[b]orrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
Supplement to Interim Final Rule
The above supplement to the previous Rules clarifies among other things that:
- Private equity firms and hedge funds primarily engaged in investment and speculation are not eligible for PPP loans;
- a business participating in an Employee Stock Ownership Plan (ESOP) does not trigger the affiliation rules for purposes of determining eligibility for a PPP loan, so that a business with an ESOP may be eligible for a PPP loan; and
- a business in bankruptcy is not eligible for a PPP loan.
The supplement to the Interim Final Rule also gives businesses the ability to pay back a PPP loan by May 7, 2020, if the business obtained PPP loan funds but is not eligible “based on a misunderstanding or misapplication of the required certification standard.” Section 1102 of the CARES Act and the Borrower Application Form requires PPP applicants to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The SBA states:
Any borrower that applied for a PPP loan prior to the issuance of this regulation and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. The Administrator, in consultation with the Secretary, determined that this safe harbor is necessary and appropriate to ensure that borrowers promptly repay PPP loan funds that the borrower obtained based on a misunderstanding or misapplication of the required certification standard.
Now that the government has authorized additional funds for the PPP, let’s hope the above clarification from the SBA quickly frees up some PPP funds for businesses that deserve and need them.
As always, please don’t hesitate to reach out to your Archstone attorney should you have any questions, or if we can be helpful as you navigate during this unprecedented time.