SBA Clarifies That Businesses With Adequate Sources of Liquidity May Not Qualify For PPP Loans

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May 1, 2020

The Department of Treasury released updated Protection Program FAQs.  These updated FAQs continue to raise more questions and concerns from PPP borrowers and provide little clarity on SBA expectations and forgiveness.

Published on April 28th, FAQ #37 responds to the question “Do businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?” by referring readers back to FAQ #31.  FAQ #31 provides the general principle that, in order to certify in good faith that the PPP loan is necessary, a borrower must take into account other sources of liquidity (i.e. bank loans, capital raises, etc.) that could be utilized instead of a PPP loan.  It is unclear how broadly or narrowly this FAQ will be interpreted by the SBA and lenders when determining forgiveness eligibility.  It is also concerning that early PPP information stated that borrowers did not have to establish inability to access other capital before applying, but this FAQ signals to a possible need to establish such inability to access capital before being granted forgiveness of a PPP loan.

Published on April 29th, FAQ #39 provides that the SBA will review all PPP loans in excess of $2 million upon application for forgiveness.  Earlier information stated that lenders would be required to make forgiveness determinations within 60 days of a forgiveness application from a borrower.  It is unclear at this time how an SBA review or audit will impact a forgiveness determination.

The updated FAQs give some indication as to the SBA’s areas of focus going forward, but we are all still waiting for further guidance on loan forgiveness.  The FAQs continue to indicate that this guidance will be coming.  In addition, this new “audit” regime has many PPP borrowers concerned about whether their files support the analysis and due diligence that the SBA might require.  We will continue to monitor FAQs and other updates from the Department of Treasury and provide you with the latest information as we receive it.  We also are here to help borrowers review the evidence of the decision-making process that led to the PPP loan application to support any certifications made.

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