On April 29, 2020, the SBA released guidance addressing whether businesses owned by private companies with adequate sources of liquidity to support the business’ ongoing operations qualify for a Paycheck Protection Program (“PPP”) loan. In its guidance, the SBA stated that businesses that have either already accepted a PPP loan or have a pending application must assess their economic need for the loan. The application process requires borrowers to represent that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the business.” The SBA further explained that it would review PPP loans already funded to determine whether the loan was actually needed by the borrower, and whether the certification was actually made in good faith. The SBA offered borrowers the option to return the loan by an extended date, May 14, 2020 (originally May 7, 2020), to avoid penalty if the borrower had failed to make the certificate in good faith. However, it was unclear by this guidance as to how the SBA would measure what it means for a business to have “adequate sources of liquidity” that would have precluded a borrower from making the certification in good faith.
Now, in its latest guidance (FAQ 46) issued on May 13, 2020, the SBA has stated that with respect to any PPP loan taken by a borrower and its affiliates in an amount less than $2 million, it will not question whether the certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” was made in good faith.
The SBA reasoned that borrowers with loans below the $2 million threshold are generally less likely to have had access to adequate sources of liquidity than those businesses that had taken larger loans.
With respect to loans above $2 million, SBA will still audit those loans, but will not seek further enforcement if the loan is repaid after SBA determines that the certification was not made in good faith.
This information has been prepared by Tydings for informational purposes only and does not constitute legal advice.