As previously noted in GHJ’s COVID-19 Updates, GHJ expects additional guidance from the Small Business Administration (SBA) to allow applicants to re-assess their initial application in light of questions on PPP eligibility for certain borrowers.
Today (April 23) the SBA provided guidance in response to perceived abuses of large companies taking PPP loans when such companies’ capitalization might be sufficient to carry it through the period covered by PPP funding.
As has been experiencing over the past few weeks, the specific guidance if businesses owned by large companies with adequate sources of liquidity to support their ongoing operations can qualify for PPP loans is unclear (see question 31 in FAQs).
For example, what is considered a large company with adequate sources of capital? SBA singled out publicly traded companies with significant market value and access to capital markets as being prima facie ineligible. However, it does clarify that the PPP loan is “necessary” in light of current business activity and other sources of liquidity to support current operations “in a manner not significantly detrimental to the business.”
It is the last paragraph in the FAQs that must be considered for borrowers that have already been funded by the PPP loan. The SBA is providing a grace period until May 7, 2020 for applicants to repay the loan in full if they do not meet the required eligibility in order to be deemed to have made the required certification in good faith without repercussion.
GHJ Observations
GHJ expects additional guidance on the above from the SBA to allow applicants to re-assess their initial application.
This allows companies to evaluate their situation and review their application and certifications so as to take advantage of the grace period offered. In particular, borrowers should pay attention to the second certification on the loan application that reads: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
If a company believes that a review of its eligibility might lead to repaying PPP loan funds, exercise care in utilizing these funds over and above the company’s ability to repay the loan by the May 7, 2020.
GHJ is constantly monitoring the situation and will provide more insights and guidance as soon as relevant information is released by the SBA.
Please reach out to GHJ’s COVID-19 Resource Team if you have any questions specific to your businesses on the PPP loan, CARES Act or any other COVID-19-related legislation or issues.
