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On April 24, 2020, the Small Business Administration released additional guidance, further clarifying terms of the Paycheck Protection Program under the CARES Act. Key points include the following:
Requirements for Promissory Notes and Authorizations
Hedge Funds and Private Equity Firms
Portfolio Companies of Private Equity Firms
Limited Safe Harbor with Respect to Certification Concerning the Need for a PPP Loan Request
Paycheck Protection Program Loans Frequently Asked Questions April 24, 2020 FAQ #31
FAQ #31 added a new standard with respect to a PPP loan. The FAQ stated that the borrower must take into account their access to additional funding. If such funding is reasonably available, the borrower may be ineligible to receive a PPP loan. Specifically, FAQ #31 addresses 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 “current 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.
Again, the Interim Final Rules Business Loan Program Temporary Changes; Paycheck Protection Program-Requirements- Promissory Notes, Authorization, Affiliations, and Eligibility, provides limited safe harbor with respect to a borrower’s prior certification as to the economic necessity of the PPP loan based on the borrower’s access to additional funding sources. Specifically, “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, 2020, 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.
FAQ #37 further explains that the requirements defined in FAQ #31 also pertains to private companies. Specifically:
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.
The entire Business Loan Program Temporary Changes; Paycheck Protection Program-Requirements- Promissory Notes, Authorization, Affiliations, and Eligibility can be found here.
FAQs issued by Treasury can be found here.
Please contact your HCVT professional to discuss any questions you have regarding the Paycheck Protection Loan Program. Additional resources can be found in HCVT Tax Alerts and COVID-19 Resources.