While the Small Business Association (SBA) re-opened their doors for Paycheck Protection Program (PPP) loan applications on the morning of April 27, they were busy in the days leading up to this second rollout providing additional clarification about the “economic necessity” certification all applicants are required to make – namely, that “current economic necessity makes the loan request necessary to support ongoing operations of the applicant”.
The first rollout of the PPP was rocky to say the least with technical difficulties, confusion around the application process and the quick exhaustion of the funds. However, one of the biggest criticisms was that companies like Shake Shack and Ruth’s Chris received these loans. The Treasury Department issued new guidance on April 23 in FAQ #31 regarding the “economic necessity” certification. The new guidance provides as an example that it’s unlikely that a “public company with substantial market value and access to capital markets” would be able to make this economic necessity certification in good faith.
Now, all PPP applicants (including those that already received PPP funds) must review and carefully consider whether they can make this certification in good faith in light of this new guidance. If not, loan funds should be paid back in full by May 7, 2020 to avoid penalties for making the certification in bad faith.
While at first blush this new FAQ #31 appeared to target large, public companies who received PPP loans, the Treasury Department and SBA also issued a new Interim Final Rule on April 24 that included the following loan eligibility clarifications:
Ultimately, all PPP loan applicants (regardless of when you applied) should confirm that they meet the required criteria for the economic necessity certification, taking into account their particular economic situation and facts surrounding their business. We recommend that clients take the following action:
LP continues to monitor this situation and will continue to update our publications as more information is released.
For more resources and LP's response to COVID-19, visit this webpage.