Certifying Your PPP Loan

On April 23, 2020, the U.S. Department of the Treasury (the Treasury) and the Small Business Administration (SBA) issued guidance on the Paycheck Protection Program (PPP) – the SBA issued a supplemental interim rule1, and the Treasury added Question #31 to its list of frequently asked questions associated with the PPP2. This updated guidance comes on the heels of Treasury Secretary Mnuchin’s Coronavirus Task Force Briefing on April 21, 2020, where he stated that PPP loans were not intended for “big public companies that have access to capital,” vowing to “put an FAQ out and explain the certification” and that “there are severe consequences for people who don’t attest properly to this certification3.”

Unfortunately, the question is not limited solely to publicly traded companies and applies to all companies applying for PPP loans.

Assessing the “Need” and Possible Return of PPP Loan

The SBA’s supplemental interim rule provides a “Limited Safe Harbor with Respect to Certification Concerning Need for PPP Loan Request.” This rule is explained in response to Question #31: “Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?4

The answer provided by the Treasury seems to indicate that companies should perform a lookback, reevaluation and reassessment of the true economic need for the PPP loan weeks after the loan application was certified by the applicant. Now that over 1.6 million companies have received over $342 billion in loans, the Treasury is instructing all borrowers to review “applicable affiliation rules to determine eligibility” and “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 application5.”

The FAQ response goes on to say that while ordinarily the Small Business Act requires a borrower to demonstrate that they are unable to obtain credit through other means, the CARES Act suspends this requirement for PPP loans; however, borrowers “still must certify in good faith that their PPP loan request is necessary6.” The FAQ response also states that “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 Applicant7.’”

The Treasury reminds borrowers that they made “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 [emphasis added]8.” Public companies with substantial market value and access to capital markets are warned that it is unlikely that they will be able to make the required certification in good faith. The guidance hints that such companies should be prepared to demonstrate the basis of the certification to the SBA, if requested. We recommend reading an article recently published by Holland & Knight LLP titled Key Factors for Companies to Consider When Certifying Their PPP Need, which discusses key considerations that may be helpful for businesses when assessing their current business activity and their ability to access other sources of liquidity.

On April 20, 2020, U.S. Senator Marco Rubio stated, “Any business, regardless of size, must certify it has been harmed by the coronavirus crisis and that PPP is necessary to maintain operations. This fall, the Senate Committee on Small Business and Entrepreneurship will conduct aggressive oversight into the use of the PPP. If companies are not forthcoming, the Committee will use its subpoena power to compel cooperation9.”

Safe Harbor

Companies that received a PPP loan and are concerned that their current business activity could be challenged or have some question about their ability to access other sources of liquidity based on this guidance are provided with an option. The SBA and Treasury guidance is closed out by stating, “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 faith10.” Holland & Knight LLP provides detailed insights in its article Ineligible PPP Borrowers Granted Safe Harbor Period to Return Money by May 7, which discusses how this interim final rule grants a safe harbor period to such PPP borrowers, as well as possible civil and criminal penalties for noncompliance. We recommend this article as an additional source of information for the safe harbor, areas of enforcement, oversight and potential liability.

The guidance also provides that it is unlikely that a borrower can look back to their lender for support. Guidance clearly states that a lender may rely on the borrower’s certification regarding the necessity of the loan request.

Information Subject to Freedom of Information Act (FOIA)

Businesses participating in the PPP should be aware that information submitted as part of the PPP is subject to the Freedom of Information Act (FOIA) and could be made publicly available based on such FOIA requests.

Summary and Recommendations

The new guidance introduces the need to consider additional factual issues management needs to assess. Unfortunately, these factual determinations also may require legal interpretations of terminology used in the new guidance. If you are concerned that your company could be at risk under this new guidance or you have questions as to the impact of the new guidance upon your outstanding or pending PPP loan or application, we strongly encourage you to contact your legal advisors as soon as possible.

Given the breadth of the issues raised by the new guidance, a team approach to address these concerns may be needed. We are happy to work with you and your legal advisors to assist in your assessment of the factual issues raised by the new guidance and your determination of whether actions need to be taken by your company as a result of such guidance. If you or your legal counsel have any such concerns, please reach out to us at CARESActQuestions@dhg.com.

Sources

  1. SBA Business Loans Program Temporary Changes; Paycheck Protection Program – Requirements – Promissory Notes, Authorizations, Affiliation and Eligibility, Docket Number
  2. SBA-2020-0021.
  3. Paycheck Protection Program Loans – Frequently Asked Questions.
  4. Coronavirus Task Force Briefing, April 21, 2020.
  5. Paycheck Protection Program Loans – Frequently Asked Questions.
  6. Paycheck Protection Program Loans – Frequently Asked Questions.
  7. Paycheck Protection Program Loans – Frequently Asked Questions.
  8. Paycheck Protection Program Loans – Frequently Asked Questions.
  9. Paycheck Protection Program Loans – Frequently Asked Questions.
  10. “Rubio: Small Business Committee Will Use Subpoena Power to Review Paycheck Protection Program Compliance.” April 20, 2020.
  11. Paycheck Protection Program Loans – Frequently Asked Questions.

CONTRIBUTORS

Denny Ard
DHG Solutions Lab Leader
Denny.Ard@dhg.com
Bill Walter
Managing Director
Bill.Walter@dhg.com

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