The Paycheck Protection Program (PPP) was originally funded with $349 billion, and Congress recently appropriated another $310 billion for the program. The PPP application requires all borrowers to certify in good faith that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.” The Treasury has released guidance indicating that borrowers should undertake a “sources of liquidity” review to ensure borrowers fulfill the foregoing certification requirements. Specifically, the Treasury, in Question 31 of its FAQs on the PPP program, states,

… before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, considering 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. 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 to SBA, upon request, the basis for its certification (emphasis added).

Under the Treasury guidance, borrowers that repay their PPP loan by May 7, 2020, will be deemed to have fulfilled the good-faith certification requirements.

The Treasury also recently issued guidance stating all loans of $2 million and above will be reviewed. These reviews are expected to require borrowers to substantiate their certifications, among other items. A determination that a borrower did not meet the certification requirement could result in various civil and criminal penalties. Accordingly, borrowers intending to keep PPP funds should undertake a sources-of-liquidity review and substantiate the review through written documentation. Members of BakerHostetler’s Debt Finance, Government Contracts, Tax, and White Collar, Investigations and Securities Enforcement and Litigation teams are assisting clients with an analysis of the types of factors likely to be relevant to expected SBA reviews of PPP loans.