Today President Trump signed a $484 billion bill, $320 billion of which provides additional funding to the Paycheck Protection Program after the original tranche of funding was exhausted in less than two weeks. The Paycheck Protection Program allows qualifying small businesses to receive potentially fully forgivable loans for payroll costs and other allowed expenses spent over an eight-week period. This second wave of money came with a new FAQ and new Interim Final Rule on, among other things, eligibility for businesses owned by large companies.
The FAQ clarifies the certification that borrowers must make in good faith when applying for a Paycheck Protection Program loan that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." The FAQ explains that 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. It further states that, 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, upon request, the basis for its certification. Accordingly, although the ordinary requirement for SBA loans that borrowers must be unable to obtain credit elsewhere is suspended for the Paycheck Protection Program, borrowers must still certify in good faith that the Paycheck Protection Program loan request is necessary. The FAQ offers a window of correction for borrowers that applied for a Paycheck Protection Program loan prior to the issuance of this guidance, but cannot make a good faith certification as defined by the new FAQ: if a borrower repays the loan in full by May 7, 2020, it will be deemed to have made the required certification in good faith.
The Interim Final Rule further provides that hedge funds and private equity firms are ineligible to receive loans under the Paycheck Protection Program because Congress did not intend these loans to be for these types of companies.
If you have any questions regarding this Alert, please contact the authors, Shane Muñoz, partner in our Tampa office at smunoz@fordharrison.com, and Matthew Luttinger, associate in our West Palm Beach office at mluttinger@fordharrison.com. Of course, you may also contact the FordHarrison attorney with whom you usually work.
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Article orignally published on 24 April 2020
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