On April 24, 2020, the Paycheck Protection Program and Healthcare Enhancement Act (the "Enhancement Act") was signed into law. The Enhancement Act increases the amount of funds appropriated under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) by providing an additional $310 billion for the Paycheck Protection Program (PPP), $50 billion for the Disaster Loans Program, and $10 billion for Emergency Economic Injury Disaster Loans (EIDL) Grants.
The Small Business Administration (SBA) has resumed accepting PPP applications today (April 27, 2020). While there are many factors eligible small businesses must consider before accepting a PPP loan, those interested in doing so should promptly prepare their PPP applications and gather the required documentation needed for it.
Though the Enhancement Act does not alter the eligibility criteria for businesses seeking a PPP loan, last Thursday, the U.S. Department of the Treasury issued updated guidance that any business considering such loan should review. Additionally, the SBA published an interim final rule on Friday, which provides additional guidance for small businesses, including clarification that hedge funds and private equity firms are ineligible to receive a PPP loan.
Both documents reinforce the need for small businesses to carefully consider the economic uncertainty and business necessity certification that applicants make on their PPP application. In particular, Question #31 of the U.S. Treasury's guidance addresses the requirement that applicants must certify that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." The guidance emphasizes that PPP borrowers must make such certification "in good faith" and take into account aspects such as business activity and their ability to access other sources of capital in a manner that is not significantly detrimental to the business. The guidance provides in relevant part:
"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."
The guidance also provides that any borrower that received loans based on an application filed prior to the issuance of the new guidance will be deemed by the SBA to have made the required certification in good faith if the borrower repays the loan in full by May 7, 2020. This safe harbor provision is also reiterated in the SBA's interim final rule. In particular, the interim final rule states that "[t]he 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."
Finally, on Friday, the SBA published additional guidance on calculating payroll costs for determining the amount small businesses may apply for under the PPP. Small businesses that are in the process of preparing their PPP applications should consult that guidance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
