SBA Issues New FAQs Regarding Borrower Certification for PPP Loans

On April 23, 2020, the SBA issued new FAQs providing some clarification on the borrower certifications required in connection with the Paycheck Protection Program (“PPP”) loans.  These FAQs (in particular question 31) are a direct response to news stories concerning large publicly traded companies obtaining PPP loans.  Although these FAQs may appear to be geared towards large companies or public companies, we believe portions of the response create ambiguity, and could be applied to the guidance which applies to all borrowers under the program – big and small.

The PPP loan application requires borrowers to certify that “current economic uncertainty makes the loan request necessary to support the ongoing operations of the applicant.” The guidance requires that all borrowers “assess the economic need for a PPP loan” and clarifies that borrowers must make the certification “in good faith” taking into account their:

  • current business activity; and
  • ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.

This language seemingly imposes a higher certification standard than the one in the CARES Act and that has been in place since the beginning of the program.  It is unclear if the “current business activity” language requires a harm to have occurred on or before the application was submitted.  Also, the second prong seems contrary to the waiver of the “credit elsewhere” requirement in the CARES Act and may suggest that a company with access to sufficient additional cash may not qualify for a PPP loan, a standard again which is not reflected in the CARES Act.

The guidance assumes that publicly traded companies with “substantial market value and access to capital markets” are “unlikely” to make the certification in good faith and should be “prepared to demonstrate to the SBA… the basis” for their certifications.

Borrowers who applied for a loan prior to the issuance of the new guidance and who repay their loan before May 7, 2020, will be deemed to have made the required good faith certification.

The new FAQs may impact the application and certifications of all borrowers, including small businesses.  If you have additional questions or want to discuss your application, please reach out to a member of our Corporate practice group for assistance.

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