In response to the COVID-19 pandemic, Congress passed the CARES Act which set up the SBA-administered Paycheck Protection Program (PPP) to provide for emergency financial relief in the form of forgivable loans to small businesses with less than 500 employees. My earlier post concerning the relief offered by the CARES Act can be found here. On April 24, in response to overwhelming demand, Congress authorized additional funding of $310 billion for more PPP loans.
However, on April 23, apparently in response to critical news reports that numerous PPP loans had been obtained by large, well-financed public companies, the U.S. Department of the Treasury added Question 31 to its PPP Frequently Asked Questions (FAQ) to clarify a borrower’s required good faith certification that current “economic uncertainty” makes the PPP loan “necessary” to support “ongoing operations.” The Treasury Department has also publicly announced that it will audit all PPP loans in excess of $2 million.
The Treasury Department’s new guidance now advises borrowers to assess their economic need for a PPP loan and to carefully review the required good faith certification, 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 their business. The Treasury Department guidance also establishes a “safe harbor” that specifies that any borrower, who applied for the PPP loan prior to April 23, and repays the loan in full by May 7, 2020, will be deemed to have made the required certification in good faith.
The takeaway from this new guidance and audit announcement is that any business which obtained a PPP loan should probably re-examine its good faith certification and whether and how it has been economically impacted by the COVID-19 pandemic and whether it has a true need for the PPP loan in order to support its ongoing business operations. If a business determines that it can no longer make the good faith certification, it has until May 7 to repay the loan and its prior certification will be deemed to have been made in good faith. Any business which has obtained a PPP loan in excess of $2 million should expect to have to defend its good faith certification and its need for the PPP loan.
If you need assistance on PPP loans, call or email me. I’ll be happy to assist in anyway possible.
Thank you, and please stay safe in this difficult and stressful time.
Christopher I. McCabe, Esq.
