Payment Protection Program and Economic Injury Disaster Loan Update - May 13, 2020

Client Alert

Client Alert
May 13, 2020

This client alert serves as an update as we further track developments in the implementation of the Paycheck Protection Program (the “PPP”), an SBA-guaranteed loan program promulgated under the CARES Act.  For more information on the PPP, please see the webinar we hosted with the Association of Corporate Counsel, our webinar on the Main Street Lending Program, and our prior client alerts:

On May 13, 2020, the SBA issued further guidance regarding the PPP, specifically with respect to the borrower certification regarding necessity of the loan.  As background, in order to be eligible, a PPP applicant must certify that “[c]urrent economic uncertainty makes th[e] loan request necessary to support the ongoing operations of the [a]pplicant.”

The key takeaways from the new guidance are as follows:

  • The SBA has provided a safe harbor with respect to the necessity certification if aggregate loans issued to a borrower and its affiliates are less than $2 million.
  • For borrowers that do not qualify for the safe harbor, the SBA seems to have implemented an “adequate basis” test for determining whether the certification was correct.  As such, the existence of documentation to backstop a decision to apply for a PPP loan remains critical.
  • Finally, if the SBA determines that a borrower did not have an adequate basis to make the certification, the SBA will not take any further action against the borrower if the PPP loan is returned.
 
This information is intended to inform our clients and other friends about legal developments, including recent decisions of various municipalities, legislative, and administrative bodies. Because of the rapidly changing landscape related to COVID-19, we intend to send out regular updates. The information we provide is not intended as legal advice and viewers/readers should not rely on information contained in these materials to make business or legal decisions. Before making any legal decisions, consult your lawyer. Please do not hesitate to contact us should you need assistance responding to the many issues which have arisen, and will continue to arise, out of this situation.
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