When the Paycheck Protection Program (“PPP”) ran out of funds last week, many of our nation’s small businesses hardest hit financially by COVID 19 were left without relief. And, reports that hundreds of millions of PPP dollars when to large, publicly traded companies led to strong criticism of the program. Over the last few days, we’ve learned that Ruth’s Chris Steak House, Potbelly, and even Harvard got millions of dollars in PPP funding.
On the heels of attacks over this use of PPP funds, the U.S. Small Business Administration (SBA) has issued new guidance that sends a strong message that PPP funds secured by large companies that don’t really need the money may need to be paid back.
The SBA added the following question today to its “Frequently Asked Questions” document: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?
You can read the full answer here (see question 31). In summary, the answer reminds us that as part of the application process all PPP borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
Successful public companies likely cannot make good faith certification of need
The answer to the FAQ also points out that it is unlikely that “a public company with substantial market value and access to capital markets” is able to make that certification in good faith. According to the guidance, if such a company does make that certification, it needs to be prepared to provide the SBA with a basis for the certification.
What if such company already took PPP money?
Finally, the answer to the FAQ gives direction on what a company should do if it already made a certification of need that may not be supportable. Essentially, it needs to pay the loan back by May 7, 2020:
“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.”
Finney Law Firm will continue to provide updates as more guidance is given by the SBA on the Paycheck Protection Program. If you have questions about the PPP, please feel free to contact Rebecca Simpson Heimlich at 513.797.2856.