The Treasury Department has issued a series of FAQs related to loans made under the Paycheck Protection Program provisions of the CARES Act, one of which is addressed to borrowers that are large companies and, particularly, public companies. The FAQ provides that, to be eligible for a PPP loan, a borrower must certify, in good faith, that the loan is necessary to support continuing operations. According to the FAQ, that may be difficult in some cases. Update: The May 7 deadline for reliance on the repayment safe harbor has been extended to May 14 (see question 43).
The FAQ is set forth below in its entirety:
“31. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?
Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” 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.
Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any 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.”
As reported here, on Fox Business Network, the Treasury Secretary cautioned that companies that received PPP loans “could be subject to investigation” if it turns out they could not make that certification in good faith. The Secretary advocated that businesses review their applications, and, if they later decide that they cannot make the certification and promptly return the funds, there would be no liability to the Treasury or the SBA. No harm, no foul?
