Updated SBA PPP Eligibility Guidance

GOOD FAITH CERTIFICATION OF NEED FOR PAYCHECK PROTECTION PROGRAM LOAN

On April 24, 2020, the Small Business Administration (SBA) issued a new Interim Final Rule (Rule) addressing various requirements related to the Paycheck Protection Program (PPP). Specifically, the Rule clarified a provision in the CARES Act regarding borrower eligibility, as well as the borrower’s certification in the Borrower Application Form concerning the need for a PPP loan request. The Rule also created a safe harbor for applicants who applied prior to this clarification.

The Rule states:

Consistent with section 1102 of the CARES Act, 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.” Any borrower that applied for a PPP loan prior to the issuance of this regulation and repays the loan in full by May 7, 2020¹ 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.

The SBA previously issued guidance that borrowers must make a good-faith certification of their economic need, taking into account their current business activity and their ability to access other sources of liquidity (i.e. capital markets, ongoing revenue streams) sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.

While noting that each business must make its own assessment of economic need for a PPP loan, the SBA updated its Frequently Asked Questions to provide the following example: “it is unlikely that a public company² 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 the SBA, upon request, the basis of its certification.”

Our loan documentation, which is based on the SBA PPP loan terms, requires you to certify your eligibility for a PPP loan, including the necessity of the loan to support ongoing business operations as outlined above.

GOVERNMENT AUDIT OF PPP LOANS OVER $2 MILLION

On April 28, 2020, Secretary of the Treasury, Steven Mnuchin, issued the following statement:

“We have noted the large number of companies that have appropriately reevaluated their need for PPP loans and promptly repaid loan funds in response to SBA guidance reminding all borrowers of an important certification required to obtain a PPP loan. To further ensure PPP loans are limited to eligible borrowers, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application. Regulatory guidance implementing this procedure will be forthcoming.”

Secretary Mnuchin has maintained the Treasury Department’s position that PPP loans were not meant for public or privately-owned companies with adequate sources of liquidity and has further stated that Borrowers will be subject to criminal liability¹ if they make a false certification of economic need.

On May 13, 2020, the SBA issued FAQ #46 which further addresses the good-faith certification requirements for borrowers with PPP loans greater than $2 million:

“SBA has previously stated that all PPP loans in excess of $2 million, and other loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.”

What if My Loan is Under $2 Million?

On May 13, 2020, the SBA FAQ #46 further addresses how the SBA will review borrowers’ good-faith certification concerning the necessity of their loan request.  The guidance indicates as follows:

"Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”

We are unable to provide guidance as to any aspect of the borrower eligibility requirements under the CARES Act and PPP regulations, nor can we provide you with advice regarding repayment determinations. If you have questions concerning the eligibility of your business to receive a PPP loan, we recommend that you consult with your accounting advisor or legal counsel. We also recommend that your continue to check the SBA PPP home page as well as the Treasury Department PPP home page as information is updated on a regular basis.

As an applicant or borrower under this program, it is your obligation to stay informed of the latest guidance from the Treasury and the SBA related to this program.