Updated FAQ says applicants with 'other sources of liquidity' likely will not qualify for loans

The U.S. Small Business Administration today (Thursday, April 23) updated its guidance on the Paycheck Protection Program (PPP), a program established by the CARES Act to provide relief for businesses with fewer than 500 employees affected by the coronavirus pandemic, to clarify that participating borrowers must certify in good faith that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant." A PDF of the program's newly updated Frequently Asked Questions (FAQ) document is posted here.

The new guidance is intended to address questions raised by the fact that several larger companies such as restaurant and hotel chains were approved for forgivable PPP loans during the program's first weeks, before its funding ran out last week, while large numbers of smaller companies were unable to secure loans. The House later today (April 23) is expected to clear for the President's signature a $310 billion infusion into the PPP (HR 266), along with additional funds for SBA disaster loans and grants, as well as funds for hospitals and virus testing.

Specifically, the SBA has added a new Question #31 to its guidance document on whether "businesses owned by large companies with adequate sources of liquidity to support the business's ongoing operations qualify for a PPP loan." The FAQ says that "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."

In an appearance on Fox Business Network on April 22, Treasury Secretary Steven Mnuchin said it was uncertain whether some larger companies qualified for PPP loans, based on the application's self-certification step. "I think a lot of these big companies, it's questionable whether they can make that certification; I think they should review it," Mnuchin said. Reuters also reported that companies could be investigated by the Justice Department if they do not actually need the PPP loans.

The scrutiny on larger companies' self-certifications appears to apply to new applications for the second tranche of PPP funding. The updated FAQ says, "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."

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