Authors: Andrew C. Gold, Eric A. Stabler and Patrick J. O'Sullivan, Jr.
On April 24, 2020, the President signed the Paycheck Protection Program and Health Care Enhancement Act into law. The legislation appropriates (i) an additional $321 billion in funding to the Paycheck Protection Program (PPP) ($310 billion in new committed funds), (ii) $50 billion to the Disaster Loans Program and (iii) $10 billion to Emergency Injury Disaster Loan (EIDL) Grants.
Further, on April 23, 2020, the Small Business Administration (SBA), in consultation with the Department of Treasury, issued additional guidance pursuant to its PPP Frequently Asked Questions that borrowers need to consider in connection with their participation in the program. Recent publicity regarding publicly-traded and large companies receiving PPP loans led the SBA to issue additional guidance clarifying the “need” certification borrowers make in their PPP application.
While the CARES Act suspends the typical requirement that borrowers applying for SBA loans be unable to obtain credit elsewhere, borrowers are still required to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”. In its guidance, the SBA states that in connection with this certification, which is to be made in good faith, borrowers are to take “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.” The SBA goes on to indicate that “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”. The guidance also provides that a borrower applying for a PPP loan be prepared to demonstrate the basis for making the certification and reiterates that lenders may rely on such certification. Of note, this guidance allows borrowers that already received PPP loans to repay the loans by May 7, 2020 and be considered as having not made a bad faith certification.
Given this guidance, companies considering participation in the PPP should assess their liquidity needs and access to capital elsewhere and be prepared to support a determination that they are in need of a PPP loan.
