SPECIAL REPORT: What the FAQ? Finally some more guidance on the Paycheck Protection Program
Congress replenished the funds available for Paycheck Protection Program (PPP) loans, a loan program established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The new funds are being made available under an Enhancement Act, titled the “Paycheck Protection and Health Care Enhancement Act” which will allow lenders to make additional PPP loans. While the Enhancement Act increases funding for the PPP, it does not clarify or codify the Small Business Administration (SBA) rules and guidance issued after the passage of the CARES Act, and in some cases the SBA rules conflict with or add additional requirements not required under the statute.
To provide more guidance, the SBA, along with the Department of Treasury, has issued an updated FAQ document to address borrower and lender questions. The Frequently Asked Questions document will be updated on a regular basis. Borrowers and lenders are advised to rely on the FAQ document and the Paycheck Protection Program Interim Final Rule. We are told that the government will not challenge lender PPP actions that conform to guidance provided under the FAQ, the PPP Interim Final Rules, and any subsequent rulemaking in effect at the time.
The CARES Act requires that a PPP loan applicant provide a good faith certification “that the uncertainty of current economic conditions makes necessary the loan request to support ongoing operations of the eligible recipient.” One of the biggest areas of impact from the FAQ released April 23, 2020 is clarification regarding this certification language. Question 31 adds additional factors that applicants need to consider when making the required certification. Question 31 reads as follows:
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.
While this FAQ seems to be directed at “businesses owned by large companies with adequate source of liquidity”, the answer begins by telling us that “all borrowers must assess their economic need for a PPP loan”. The only example the SBA gave for a business not able to make the certification is a “public company with substantial market value and access to capital markets”. However, the reference to “all borrowers” may imply that even borrowers non-public and those not owned by large companies should consider these same factors as outlined in FAQ 31 before making this certification on their loan application.
This FAQ was likely added to address recent uproar over some publicly traded companies receiving a significant portion of the PPP funds. This guidance introduces an opportunity for those companies to repay the loan in full and not be penalized. While it is believed that repaid loans will be returned to the PPP, it is unclear when those repaid funds will be available for other small businesses.
Other questions in the FAQ provide clarification and guidance on the following:
· When and how businesses with more than 500 employees may be eligible to receive a PPP loan (see questions 2 and 24).
· When and how businesses need to apply the SBA affiliation rules (see questions 4-6).
· When and how payroll costs should be calculated (see questions 1, 7, 8, 10, 14, 15, 16, and 32).
The FAQ was further updated on Sunday, April 26, 2020, to include additional guidance for agricultural producers, cooperatives, farmers, and ranchers.
Please be aware that the information contained herein is current as of the date of the release of this Special Report and is subject to further changes and modifications by federal and local officials. If you have any questions or need additional information, please contact us.
CONTACT:
Andrew J. Annes, Esquire
aannes@satclaw.com
Mobile: (312) 246-3110
John W. Campbell, Jr., Esquire
jcampbell@satclaw.com
Mobile: (312) 391-3126
Websites:
https://satclaw.com/
https://www.satcsolutions.com/