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Paycheck Protection Program (PPP) Loans Over $2 Million Subject to a Full Review


Paycheck Protection Program (PPP) loans over $2 million will be subject to a full review according to Treasury Secretary Steven Mnuchin and other recent guidance provided for PPP applications.

Today, Treasury Secretary Mnuchin was quoted saying “I’m going to be putting out an announcement…that for any loan over $2 million, the Small Business Administration will be doing a full review of that loan before there is loan forgiveness.” Mnuchin further stated that “This was a program designed for small businesses. It was not a program that was designed for public companies that had liquidity.” This same message was reiterated during the President’s press conference this afternoon.

This announcement comes on the heels of the revelation that some public companies and a professional sports team received PPP funding. Some of these organizations have since announced their intention to pay back the PPP funding they received. As many small companies have struggled to receive PPP loans, a backlash appears to be building in both Washington DC and in the press in regards to the question of how certain companies and organizations “certified in good faith” that their loan request was “necessary.”

The Treasury added FAQ 31 on April 23rd which asked the question “Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan? The Treasury’s answer to this FAQ is below:

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 “current 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.

Today, the Treasury put out FAQ 37 that asked the question “Do businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?” The short answer was “See response to FAQ #31.

Essentially, it appears that FAQ 31 applies to all businesses. To review the full set of FAQs for PPP loans, please see this link.

We expect that there will be more guidance regarding the forgiveness provisions from the SBA and Treasury within the next week, and before May 7th, the date when funds must be returned as noted in FAQ 31. The new announcement of the $2 million PPP loan being subject to full review will impact many businesses that are not public and emphasizes the importance of good recordkeeping and memorializing the need for the funds. Additionally, it is important to know that the lender can rely on the borrower’s certification of need and accuracy of information for the PPP loan application. Accordingly, it is up to the company to have the proper backup and documentation supporting the loan.

Furthermore, on April 24th the Treasury came out with additional directions on how to Calculate PPP Maximum Loan Amounts – By Business Type. This information is quite helpful if you are still applying for a PPP loan or if you would like to go back and review how you did your application. It is worth a read and addresses all types of organizations including self-employed loan amounts. Here is the link for more information: https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf.

As more guidance comes out from the SBA and Treasury, BP will continue to keep you informed.

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