All applicants for a loan under the Paycheck Protection Program (PPP) must certify that the current “economic uncertainty” makes the loan request “necessary to support the ongoing operations” of the company. The Small Business Administration (SBA) initially provided very little guidance on how to interpret this certification, except that it needed to be made in good faith. However, on April 23, 2020, the SBA, in consultation with the Treasury Department (Treasury), issued FAQ #31, which states that all PPP applicants must assess their economic need for a PPP loan, including 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.” FAQ #31 goes on to state that there will be a safe harbor for any borrower who received a loan prior to the issuance of this additional guidance, so long as the borrower returned their PPP loan by May 7, 2020 (i.e., their certification would be deemed to have been made in good faith so long as the money was returned in time). The safe harbor deadline was subsequently extended to May 18, 2020, with FAQ Question #47, which was published on May 13, 2020; however, there were still many questions left unanswered for companies seeking PPP loans. How would the SBA interpret “need”? What does it mean to have access to “liquidity” that isn’t “significantly detrimental”?
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