April 30, 2020 - Last week, Congress passed the Paycheck Protection Program and Health Care Enhancement Act that expanded funding for the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) authorized in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. (For more information regarding the CARES Act and SBA loan programs, please see the Whitley Penn COVID-19 page at
This week and last week, the Treasury Department and SBA issued guidance in the form of additional FAQs that reiterates the requirement that companies submitting loan applications under the PPP provide certification that the loan is necessary because the applicant was adversely affected by the coronavirus pandemic. The additional guidance was issued in response to several high profile cases of publicly traded companies and other businesses obtaining loans under the PPP. Several borrowers including Ruth’s Chris, Shake Shack, and the Los Angeles Lakers have since repaid the funds they received under the PPP.
FAQ #31 states that “...all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application.” It also requires that all borrowers should review carefully the required certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
FAQ #31 further specifies that borrowers “must make this certification in good faith, 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.” The guidance specifically references publicly traded companies, but FAQ #37 states that privately held companies with adequate sources of liquidity to support their ongoing operations are also subject to these standards.
In order to minimize due diligence procedures required by lenders and to expedite the loan process, the certification requirement is the responsibility of the borrower. Treasury Secretary Steve Mnuchin announced earlier this week that all PPP loans in excess of $2 million would be subject to review before the loans are forgiven. The SBA issued FAQ #39 yesterday to officially announce the review requirement and indicated that additional guidance is forthcoming.
Secretary Mnuchin also stated that borrowers that submit false information during the loan process may be subject to potential criminal penalties. A borrower that applied for a PPP loan prior to the issuance of the guidance that repays the loan before May 7, 2020 will be deemed by the SBA to have submitted the certification in good faith.
PPP borrowers should review all the applicable loan requirements in light of this additional guidance. Whitley Penn has a task force of professionals available that can help you with this and any other matters related to the small business loan process. Please contact us if you have any questions or require additional assistance.