PPP Loan Borrowers – Be Prepared To Prove Lack of Liquidity As A Basis For Your Loan

In the wake of the outcry following the release of information on large public companies that had received PPP loans, the SBA has provided additional guidance to lenders and borrowers regarding the good faith certification requirements required to obtain the loan.

At first glance, this guidance appears to be directed solely at “businesses owned by large companies” and “businesses owned by private companies” with adequate sources of liquidity to support their businesses. However, the language contained within this guidance suggests that ALL borrowers may face additional scrutiny in terms of eligibility for and forgiveness of the loan. In addition to specifying that all borrowers must certify in good faith that “[c]urrent economic uncertainty” makes obtaining the loan necessary to support their ongoing operations, it adds:

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 their business.

In light of this new guidance borrowers should carefully consider the implications of this language, and prepare any necessary documentation to prove their need for this support. If you applied for the PPP loan prior to the issuance of this new guidance[1] and no longer wish to use these funds, you may repay the loan in full by May 7, 2020 and will be deemed by the SBA to have made the required certification in good faith.

For additional information, we recommend a thought provoking article entitled The ‘Laker Effect’ Continues: Ongoing Uncertainty With PPP Borrowers’ Uncertainty Certification, published by law firm Lane Powell, April 29, 2020 at: https://www.lanepowell.com/Our-Insights/202702/The-Laker-Effect-Continues-Ongoing-Uncertainty-With-PPP-Borrowers-Uncertainty-Certification.

[1] First Updated April 23, 2020 and then again April 29, 2020.