On April 24, 2020, President Trump signed into law a nearly $500 billion interim coronavirus bill that included more than $310 billion allocated to fund Paycheck Protection Program (PPP) loans.1 Of the $310 billion, the bill set aside $60 billion for smaller lenders such as credit unions, small banks, and an alternative network of community development banks that focus on development in urban neighborhoods and rural areas.
In addition to a new round of funding, the Small Business Administration (SBA) and the U.S. Department of the Treasury have issued a series of new guidelines, which seek to clarify PPP eligibility criteria and address common issues related to PPP generally. Below is a recap of the most recent PPP guidance.
New FAQs guidance published
Certifying economic uncertainty
Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere, borrowers still must certify in good faith that their PPP loan request is “necessary to support…ongoing operations” due to “current economic uncertainty.” Borrowers who do not make this certification in good faith could face future criminal and civil penalties.
On April 23, 2020, the SBA in consultation with the Department of the Treasury published a new FAQ (FAQ 31) that specifically addresses this certification requirement. FAQ 31 specifically notes 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. It further states that such a company should be prepared to demonstrate to the SBA, upon request, the basis for its certification.
Although the FAQs use the example of a “public company with substantial market value,” the guidance is not limited to public companies. Both private and public companies will need to demonstrate an inability to access alternative sources of liquidity “sufficient to support their ongoing operations in a manner that is not significantly detrimental to their businesses.”
Importantly, if a borrower applied for PPP funds prior to April 23, 2020, and is concerned about its certification in light of this new guidance, it may avoid future penalties by repaying the loan in full by May 7, 2020.
Additional FAQ guidance
Further updated FAQs were released on April 24, 2020, and on April 26, 2020. The April 26 FAQs clarified that, for the purposes of determining if a potential borrower has 500 or fewer employees, a borrower must count both full-time and part-time employees.2 However, for purposes of calculating loan forgiveness, borrowers only need to count “full-time equivalent employees” (part-time employees are not included).