As of April 27th, the Paycheck Protection Program (PPP) is once again accepting loan applications, following the appropriation of additional funding last week. On April 24th, President Trump signed into law the Paycheck Protection Program and healthcare Enhancement Act, which includes the appropriation of $310 billion of additional funding to the PPP, as well as $60 billion for the Small Business Administration’s (SBA) economic injury disaster loan program. Businesses are encouraged to act promptly, as it is likely these additional funds will be exhausted even more quickly than in the first round of borrowing.
There are also several new pieces of guidance available with respect to the PPP.
1. Frequently Asked Questions
The first is the Frequently Asked Questions (FAQs) available on the Department of the Treasury’s website, which is updated daily and includes several noteworthy questions. In particular, Question 31 requires borrowers to certify in good faith that their PPP loan request is necessary, after taking into account their current business activity and their ability to access alternative funding sources. This question has garnered significant attention because, while it notes the suspension of the SBA requirement that a borrower must be unable to obtain funding from alternative sources, the question nonetheless emphasizes the importance of a borrower’s good faith certification that PPP funds are necessary for its ongoing operations.
As a practical matter, businesses that are genuinely struggling should be able to obtain funding under the PPP, even if they could borrow from banking institutions in lieu of taking PPP funding. Since debt must be repaid with interest, a business that has to borrow to bridge its loss of revenue would likely still be required to implement cost cutting measures – particularly by cutting payroll costs – and avoiding such cuts is the intent of the statute. Borrowers who can certify in good faith that they will have to make pay or job cuts in the absence of PPP funding should thus be eligible for a PPP loan. On the other hand, Question 31 makes clear that public companies that can sell stock or even long term bonds to replace revenue, and thus will not need to immediately cut expenses, are not the intended recipients of PPP funds.
Question 31 also contains a safe harbor providing that a borrower who has applied for a PPP loan prior to the issuance of this guidance (April 23, 2020) and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith.
UPDATE: The SBA announced on May 5, 2020 that it will be extending the safe harbor repayment deadline to May 14, 2020. The SBA has also indicated that it intends to provide additional guidance prior to May 14 on how it will review borrower certifications.
Please contact us if you have concerns about your ability to obtain funding based on the above FAQ or about your previous receipt of funds prior to the issuance of this FAQ.
2. Calculation of Loan Amount
The SBA has also released additional guidance with respect to calculation of PPP loan amounts, which may be helpful to borrowers. This guidance is available on the U.S. Treasury Department’s website at https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf.
3. cThird Interim Final Rule
Finally, SBA has released a third Interim Final Rule supplementing its prior regulations and guidance. Of note is Section 5 of the Interim Final Rule, which memorializes the safe harbor in Question 31 of the FAQs discussed above.
If you have any questions about the topics discussed in this Alert, please contact Jason Navarino, Rich Lomuscio, Hannah Greendyk or any member of Riker Danzig’s Corporate and Tax Departments.
Please visit Riker Danzig’s COVID-19 Resource Center to stay up to date on all related legal issues.
