GEABP lawyers have routinely advised our clients to pay special attention to the loan certification requirements of the SBA’s Paycheck Protection Program. As more information regarding the disbursement of PPP loans becomes public, news accounts reflect advanced scrutiny of the loan process, and even class action suits.
The PPP is increasingly criticized as benefiting borrowers that do not fit the public perception of “small businesses,” and borrowers that are seen as not actually needing the PPP funds. Today, the U.S. Treasury updated its FAQs to include guidance in reaction to that criticism. The guidance stresses that PPP loan applicants must certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” and states that this certification must take into account other available liquidity sources rendering a PPP loan unnecessary to support the applicant’s operations. As an example, the guidance states 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, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.” This new guidance and recent remarks by the Treasury Secretary indicate that all PPP loan applicants may face closer scrutiny by the SBA going forward.
The guidance does provide a way for loan recipients concerned about this issue to avoid liability, stating that “[a]ny borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith” (emphasis added).
The full text of the Treasury’s FAQs is available here. We continue to advise our clients to consider the “necessity” certification carefully, especially in light of this new guidance and the public criticism recently aimed at some PPP borrowers.