A key deadline related to the Paycheck Protection Program (“PPP”) was extended late yesterday by the Small Business Administration (“SBA”). The deadline, which was May 7, is now May 14, 2020.
By way of background, a number of companies with publicly-traded securities have disclosed that they received loans under the PPP. On the basis that the PPP was organized to protect the interest of “small business” (however defined), many of those publicly-traded recipients of PPP loans have determined to surrender back to the lender the loan proceeds. In addition, certain privately held firms, most notably the LA Lakers, have determined to return the PPP funds that they received. On April 28, Treasury Secretary Mnuchin, in the course of an interview with CNBC, announced that every recipient of more than $2 million of PPP funds will be audited and smaller loans would be randomly audited. The promised written directive with respect to those audits has, as of the time of this letter, not been published.
Previously, the SBA issued guidance addressing the question of:
“Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?”
The guidance provides, in part, that:
“… before submitting a PPP application, all borrowers should review carefully the required certification that current economic uncertainty makes this loan request necessary to support the ongoing operations of the [loan] Applicant. Borrowers must make this certification in good faith …”
The guidance further provides:
“Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.”
Late yesterday, for businesses who applied for the PPP loan prior to April 24, 2020, the SBA extended the above no-fault repayment deadline from May 7 to May 14, 2020. In addition, the SBA stated that it intends to provide additional guidance on how it will review the certification before that May 14 deadline.
What does this mean to your business? Two things, principally:
1. If your business applied for a PPP loan before April 24, 2020, then your business now has until May 14, 2020, to repay the loan proceeds without risk of penalty. Your business should repay the loan proceeds before the deadline if you determine that the certification was not made in “good faith” (as defined by the SBA), or if you are unwilling to accept the risk that the SBA or other governmental agency will determine the certification was not made in “good faith”.
2. We expect to receive further guidance from the SBA about its interpretation of the “good faith” certification before May 14, 2020. This guidance will be in addition to the guidance previously issued by the SBA on this topic.
If you have borrowed PPP funds, and have concerns about your good faith certification as to the need for the funds, including as to the availability of other sources of liquidity, the attorneys at Stoll Keenon Ogden stand ready to assist.
Stay tuned for further updates on the Paycheck Protection Program.
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