Latest News on Paycheck Protection Program

Posted By: Walter Gomel SLMA News ,

As you may recall, during and after the first tranche of the Paycheck Protection Program (PPP) loans being administered through the Small Business Administration (SBA), there was an outcry in the media about some companies receiving PPP loans although they didn’t need the funds.  To qualify for a PPP loan, a borrower must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  Around the same time, the SBA published guidance in the form of Frequently Asked Questions that indicated borrowers “with adequate sources of liquidity to support” their ongoing operations may not be able to support such certification. (FAQs 31 and 37).  In addition, Treasury Secretary Mnuchin said the Treasury will audit all loans over $2 Million, and warned that if it turns out a company did not truly need the money, it will not have the loan forgiven, and could even face criminal liability.

In the first of two important developments with respect to the above, yesterday, the SBA published an additional FAQ (46) that clarifies and expands on the above.  The answer to this FAQ states that PPP loans under $2 Million (when considering the borrower’s affiliates) will be deemed to have satisfied the good faith certification requirement.  In addition, while loans over $2 Million may still be reviewed with respect to the good faith certification issue, the SBA provided that, in the event a borrower is found not to satisfy the certification requirement, the borrower can repay the loan and (i) avoid other administrative enforcement action by the SBA and (ii) a referral to any other agency.  The time period within which any required repayment is needed is not indicated.

In summary, PPP borrowers who received loans in excess of $2 Million and are selected for a review will be allowed to present their support for their need for the PPP loan and, if the SBA disagrees, the loan can be repaid without the borrower being subjected to administrative or criminal penalties.

This is obviously good news.  For those borrowers who were considering repaying their loans  as a result of the uncertainty and apprehension created by previous comments from Treasury,  this development should provide a much higher level of confidence for companies which decide to retain the borrowed funds.    

The other good news is that the SBA, in FAQ 47, extended the deadline to May 18, 2020 (from May 14) for any borrower desiring to repay the PPP loan and avoid all of the hurdles, complexities, and constantly changing developments related to the PPP.

We will continue to monitor developments in this important area.

 

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