Treasury Releases More Guidance for Paycheck Protection Program

April 27, 2020

The Treasury released more guidance late last week and over the weekend regarding PPP.   In the frequently asked questions guidance, FAQs 31 – 36 were added.  The answer to question 31 (that was published on April 23, 2020) is interesting as it states the following:

Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers 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.

Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith.

We believe this is the Treasury’s attempt to gear the PPP to “small” businesses that were actually financially impacted by Covid-19. Read all of the FAQs released to date by the Treasury for the PPP program.

Additionally, the Treasury issued its Interim Final Rule on Requirements for Promissory Notes, Authorizations, Affiliations, and Eligibility.

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