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August 02, 2021

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Updated FAQ Issued Regarding the Paycheck Protection Program and Qualification for Loans

On Thursday, April 23, the Small Business Administration (SBA) and United States Department of Treasury released a new question 31 and related answer as a supplement to the Paycheck Protection Program (PPP) Loan Frequently Asked Questions (FAQs), which they previously published and have periodically updated since the program began. Today’s addition, which is quoted below, appears to us to demonstrate the effects that public pressure is having on the SBA following the inability of a number of small businesses to participate in the first round of PPP funding:

“31. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, 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. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, 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, 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. 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.

Lenders may rely on a borrower’s certification regarding the necessity of the loan request. 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.”

* * * * * * * * * * * * * * * *

While the SBA seems to take the position that nothing has changed, the timing and tone of this new FAQ, released on its own, imply that there may be political pressure to aggressively police PPP loans made to better-funded businesses or upon allegedly fraudulent pretenses.

At best, it gives banks and their borrowers more reasons to be concerned about whether or not loan forgiveness may be denied based upon the fact that certain borrowers, particularly public company borrowers, cannot show that “their PPP loan request is necessary.” At worst, it may well be a veiled threat to use certifications made by borrowers in the Form 2483 Application Form as a basis for either civil or criminal liability.

While this updated PPP FAQ states that the lenders “may rely on borrower’s certification regarding the necessity of the loan request,” that may be of little consolation if the loan they make is ineligible for forgiveness because of such statements that are found to be “false,” in which case they may be forced to collect an unsecured loan accruing 1% interest over two years. Therefore, both lenders and borrowers would be wise to consider this addition to the PPP FAQs as well as the apparent shift in political and regulatory sentiment as they prepare for the new round of PPP funding.

© 2021 Jones Walker LLPNational Law Review, Volume X, Number 115

About this Author

Robert L. Carothers, Jones Walker, Banking Services Lawyer, Financial Regulation Attorney

Rob Carothers is a partner in the firm's Banking & Financial Services Practice Group. His practice is focused primarily in the area of financial institution regulation. He has experience advising state banks, national banks, thrifts, and their holding companies on a wide range of regulatory matters, including:

  • Affiliate transactions and compliance with Sections 23A and 23B of the Federal Reserve Act and Regulation W and Anti-Tying Rules

  • Applying for CDFI status

  • ...
Curtis R. Hearn Securities Attorney Jones Walker Law Firm

Curt Hearn is the practice group leader of the Corporate & Securities Practice Group. He handles mergers, acquisitions, and divestitures, as well as capital raising transactions for a variety of publicly traded and privately held companies. Mr. Hearn represents private equity and venture capital firms, and focuses his practice on companies in the energy, energy service, healthcare, transportation, logistics, and manufacturing sectors. 

Mr. Hearn has more than twenty years of experience representing large bank holding companies in Louisiana....

Craig N. Landrum, Jones Walker, Banking Industry Lawyer, Insurance Representation Attorney

Craig Landrum is a partner in the firm's Banking & Financial Services Practice Group and practices from the firm's Jackson office. His practice focuses on bank regulatory law, corporate law, mergers and acquisitions law, and securities law. He also has experience representing insurance companies and agencies with regard to corporate and regulatory matters, including the licensing of bank subsidiaries as general insurance agencies and underwriters.

Mr. Landrum is a graduate of Mississippi State University, where he received a bachelor of...

J. Marshall Page, III Corporate Attorney Jones Walker New Orleans, LA

Marshall Page is a partner and co-leads the Corporate Practice Group. Marshall primarily practices in the areas of M&A, private equity investment, joint ventures, project development, and the associated financings, with special emphasis in the energy, maritime, and advanced manufacturing industries.

Described by clients as “a very adept, thoughtful and professional negotiator” who is “very practical and creative in finding solutions” as referenced in Chambers USA – America's Leading Lawyers for Business, Marshall has deep experience in multi-party,...

Ronald A. Snider Bank Regulatory Law & Corporate Law Jones Walker Mobile, AL

Ron Snider is a partner in the Corporate Practice Group, where he focuses his practice on bank regulatory law and corporate law. 

From 1973 to 1979, Ron was with the Federal Home Loan Bank Board, first in the Office of the General Counsel, and then as assistant secretary. He also served as assistant secretary of the Federal Home Loan Mortgage Corporation from 1976 to 1979.

In addition to his active involvement in a number of professional associations, Ron is a member, and past chairman, of the board of the Alabama Public Library Service, serves on the Gulf...