In the last few days, the Small Business Administration (SBA) provided additional answers to frequently asked Paycheck Protection Program (PPP) questions and published yet another interim final rule on the administration of PPP loans. Applicants and borrowers should be aware of these updates to ensure compliance with the latest program requirements and avoid any non-compliance issues that may arise.
SBA Limits Eligibility Based on Corporate Groups
Under the latest interim final rule, businesses that are “majority owned, directly or indirectly, by a common parent” are considered a single corporate group and may not receive more than an aggregated amount of $20 million in PPP loans. This limitation is immediately effective for all loans that were not disbursed as of April 30, 2020.
Additionally, the onus falls on a PPP loan applicant to notify its lender if the group has applied for or received loans exceeding this limitation. If it has, the applicant must withdraw its application or request cancellation of a pending or approved application. If the applicant fails to do so, the loan will be ineligible for forgiveness.
The rule makes clear that SBA’s affiliation rules and any waiver of the affiliation requirements authorized by the CARES Act continue to apply independently of this corporate group limitation. So, while a business may be eligible under the expanded criteria set forth in the CARES Act, it may be unable to obtain a loan if other entities within its corporate group have received PPP loans that encroach on this new limit.
SBA and Treasury Loan Review
Also, on April 29, SBA published additional answers to frequently asked questions about PPP loans. In Question 39, SBA explained that it and the Department of the Treasury will, following the lender’s submission of the borrower’s loan forgiveness application, review all PPP loans of more than $2 million, as well as any other loans as appropriate, to ensure that loans are limited to eligible borrowers in need. In doing so, SBA referred to its prior guidance in Question 31 about applicant liquidity and the importance for “all borrowers [to] review carefully the required certification that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”’ As a reminder, any borrower that applied for a loan prior to issuance of SBA’s April 23, 2020, answer to Question 31 of the frequently asked questions and repays the loan in full by May 7, 2020, “will be deemed by SBA to have made the required certification in good faith” and reportedly can avoid any liability.
SBA’s latest guidance and interim final rule not only reflects an effort to impose some limitation on loan eligibility in the present, it also indicates a forthcoming wave of compliance review. Borrowers should be prepared to respond and should take efforts to clearly document the business conditions that existed at the time a PPP loan certification was made.
