January 27, 2021

Volume XI, Number 27

Webinar: Changing the Rules After the Game Has Already Been Played – The SBA’s “Do-Over” of PPP Loan Necessity and Eligibility Determinations

In prior webinars following enactment of the Coronavirus Aid, Relief, and Economic Security “CARES” Act, Foley’s Distribution & Franchise Practice Group reported on the eligibility requirements for PPP loans set forth in the CARES Act and the provisions for loan forgiveness — without which most if not all borrowers never would have taken out such a loan in the first place.

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Without the prospect of forgiveness, what small business would take out a “loan” to cover payroll for employees who were not generating or not likely to generate enough revenue at the time to keep them employed? In our view, recipients of PPP loans were entitled to rely on the plain language of Section 1106(a)(6) of the CARES Act. It defines an “eligible recipient” for loan forgiveness as “the recipient of a covered loan” and states that loan forgiveness is available to any “eligible recipient.” But the SBA now claims the right to revisit PPP loan eligibility as part of the forgiveness process.

Adding to the uncertainty, the SBA recently sought approval from the federal Office of Management and Budget to release two new forms that SBA lenders would send to recipients of PPP loans in excess of $2 million. Although the deadline for public comment on these forms does not expire until November 25, 2020, and the forms have yet to be approved, some lenders are “jumping the gun” by sending out these forms to recipients of PPP loans. These forms purport to trigger a 10-day clock for returning the verified information sought.

And if the SBA or its authorized lenders were to make an ex post facto determination of ineligibility, the consequences could be serious. The lender could call the loan. Or the SBA could deny forgiveness. In certain cases, SBA auditors could refer borrowers to the Department of Justice to investigate potential criminal and/or False Claims Act liability.

Our panelists will provide practical guidance about responding to the SBA and its authorized lenders — bearing in mind that the required certifications at the time of application were based on a good faith belief back then, without the benefit of a crystal ball or hindsight, that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant."

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