![]() ![]() Secretary of the Treasury Steven Mnunchin announced on Apthat the SBA will be reviewing all PPP loan applications for loans more than $2 million dollars to determine whether the certifications made were made in good faith by the borrowing business. The SBA has suggested in the above Answer to Question 31 that the businesses should consider other sources of liquidity available to them before applying for a PPP loan program. Review of Applications for PPP Loans over $2 million: Negative press and public outcry have enabled members of the government to respond. In large part, the public companies that obtained PPP loans did in fact comply with the CARES Act in making their applications. ![]() Many businesses applied for the PPP loan for these reasons and in reliance upon the government’s forgiveness of the loan thereafter. In return, the government promised forgiveness of the PPP loan, essentially promising to pay eight weeks of the employees’ salaries, while also assisting with rent, utilities and interest on mortgages.Īdditionally, the PPP loans were to provide liquidity to businesses for eight weeks in an effort to trigger the economy. While these companies with market values in the millions were obtaining the PPP loans from the Federal Government, smaller “mom and pop shops” were shut out and unable to apply for the loan before the funds ran out.īut, it should be remembered that the design of the PPP loans were to incentivize employers to keep employees on their payroll and not terminate or furlough employees or reduce salaries. This guidance issued by the SBA is most likely in reaction to the negative press given to larger publicly traded companies such as Ruth’s Chris Steakhouse, Shake Shack, Potbelly and even the L.A. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7 will be deemed by SBA to have made the required certification in good faith. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. 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. Specifically, before submitting a PPP application, all borrowers should carefully review the required certification that “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. ![]() 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.
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