UPDATE (5/13/20): Today the SBA released FAQ #46, which states that all borrowers of PPP loans less than $2 million will be deemed to have made the ‘necessity’ certification in good faith.

In an ongoing effort to clarify its expectations regarding the Paycheck Protection Program (“PPP”), the Small Business Administration (“SBA”) has created a list of Frequently Asked Questions, or FAQs (current document available at https://www.sba.gov/document/support–faq-lenders-borrowers).

Much of the debate surrounding the PPP lately has involved how a business should determine whether it can certify in good faith that “current economic uncertainty makes the loan request necessary to support the ongoing operations” of the business. On April 23, 2020, the SBA published FAQ #31 in an attempt to assist businesses with this determination. In FAQ #31, the SBA states that when making such certification, the business must take into account its current business activity as well as its “ability to access other sources of liquidity sufficient to support its ongoing operations in a manner that is not significantly detrimental to the business”. Specifically, the SBA states that “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”.

In the same FAQ, the SBA offered a “safe harbor” to businesses that have already received a PPP loan but are not sure that the certifications they made meet the SBA’s newly-stated standards. If such a business repays the loan in full by May 14, 2020 (originally May 7, 2020, extended by FAQ #43), that business will be deemed by the SBA to have made the certifications in good faith and will not be subject to further scrutiny.

It seems probable that FAQ #31 was issued as a response to the recent media coverage surrounding businesses that accepted PPP loans when it was clear that such businesses had other sources of liquidity. However, without further clarity regarding how to determine whether other sources of liquidity are available, any business that has taken a PPP should carefully consider whether to take advantage of the SBA’s safe harbor if there is uncertainty regarding its access to alternate sources of liquidity.

Our team here at Crain, Caton & James has carefully followed the PPP and other SBA programs, and are ready to assist you. Please reach out to me if you’re struggling with these issues, I would love to talk.

Will Stafford | wstafford@craincaton.com | 713.752.8658