SBA Updates FAQs on Paycheck Protection Program: Borrower Good Faith CertificationsApril 23, 2020
On April 23, the Treasury Department and the Small Business Administration (SBA) updated an FAQ document addressing borrower and lender questions concerning implementation of the Paycheck Protection Program (PPP). The FAQ document provides answers to many commonly asked questions relating to payroll cost calculations, eligible businesses (including small business concerns), the exclusion of compensation in excess of $100,000, affiliations and certain SBA application requirements. This most recent updated FAQ provides noteworthy guidance relating to the following 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 answer provided in the guidance serves as more of a reminder that all borrowers must assess and certify in good faith an economic need for a PPP loan at the time of the loan application. The PPP loan application requires borrowers to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The FAQ document clarified the certification by stating that “[b]orrowers 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.” To illustrate, the Treasury Department and the SBA wrote that “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.”
Any borrower that applied for a PPP loan prior to the issuance of this most recent updated FAQ guidance (April 23, 2020) and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.