New PPP Lending Guidelines on Certification of Need and Possibility of Penalty-Free Repayment by May 7, 2020 | Clark Hill PLC


The Small Business Administration (“SBA”) published a new FAQ on April 23, 2020, to provide additional guidance on the Payroll Protection Plan (“PPP”) loan program contained in the CARES Act. It should be noted that the SBA has added to its previously published FAQs a question and answer number 31 regarding the certification of a borrower of the need for a PPP loan which reads as follows:

“Question: Are companies owned by large companies with sufficient sources of liquidity to support the ongoing operations of the company eligible for a PPP loan?

Answer: In addition to reviewing the applicable membership rules to determine eligibility, all borrowers should assess their economic need for a PPP loan against the standard established by the CARES Act and PPP regulations at the time of application. ready. Although the CARES Act suspends the ordinary requirement that borrowers must not be able to obtain credit elsewhere (as defined in Section 3 (h) of the Small Business Act), borrowers must still certify good credit. faith that their PPP loan application is required. Specifically, before submitting a PPP application, all borrowers should carefully review the required certification that “[c]The current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations. Borrowers should make this certification in good faith, taking into account their current business activity and their ability to access other sources of sufficient liquidity to support their ongoing operations in a manner that does not significantly harm the company. For example, a state-owned enterprise with substantial market value and access to capital markets is unlikely to be able to perform the required certification in good faith, and such an enterprise must be prepared to demonstrate to the SBA, on request, the basis of its certificate.

Lenders can rely on the certification of the borrower regarding the need for the loan application. “Any borrower who has applied for a PPP loan before the publication of these guidelines and repays the loan in full by May 7, 2020, will be deemed by the SBA to have made the required certification in good faith. ”

This new focus is likely in response to recent reports of large companies receiving PPP loans when small businesses were unable to access loan funds. Prior to this announcement, many businesses and nonprofits questioned whether they could certify that “economic uncertainty” was forcing them to apply for a PPP loan.

In addition, the new guidelines state that the SBA will consider a borrower to have determined in good faith the economic uncertainty when applying for a loan if (i) that loan was requested before April 23, 2020, and (ii) l borrower repays the loan by May 7, 2020. Alternatively, the SBA may request documents based on which the borrower’s PPP loan application was necessary and impose penalties on those who the SBA believes violated this certification.

Any business or non-profit organization that has made a good faith determination of its needs, based on the guidance available at the time the PPP loan was requested, may want to consider whether the new guidance provided in Q&A 31 would affect that determination. A business or nonprofit may consider repaying their PPP loan by May 7, 2020 and risk no penalties if, based on these new SBA guidelines, there is concern that the SBA may disagree. with the previous good faith of the organization. determination of need.

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