April 29, 2020
Last night, the Treasury released FAQ 37 in the Frequently Asked Questions under Program Rules. We are strongly encouraging businesses that obtained a PPP loan with the below-mentioned set of facts consult with their legal counsel; the deadline to repay any loans without penalty is May 7, 2020.
37. Question: Do businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?
Answer: See response to FAQ #31
31. 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.
Additionally, the Treasury released Interim Final Rule on Disbursements last night. See below for Q&A from this interim final rule:
Question: Can a borrower take multiple draws from a PPP loan and thereby delay the start of the eight-week covered period?
Answer: No. The lender must make a one-time, full disbursement of the PPP loan within ten calendar days of loan approval; for the purposes of this rule, a loan is considered approved when the loan is assigned a loan number by SBA.1 For loans that received an SBA loan number prior to the posting of this interim final rule but have not yet been fully disbursed, the following transition rules apply:
- The ten calendar-day periods described above begins on April 28, 2020.
- The eight-week covered period began on the date of the first disbursement.
This guidance reinforces that the eight-week period begins when the funds are received. The eight-week period cannot exceed June 30, 2020 (the date the program is set to end). Therefore, a borrower would need to have their loan disbursement by May 5th in order to utilize a full 8-week period. Click here to read the latest (4.28.2020) Frequently Asked Questions for the Paycheck Protection Program Loans.
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