SBA’s April 23 FAQ 31/37 – More Guidance on PPP Loans

In light of some public companies and some other large and/or wealthy organizations (for example, the LA Lakers) receiving PPP loans, the government has expounded on who should have and have not received a PPP Loan.  Under the original CARES Act, the PPP funding was intended to help businesses where “current economic uncertainty” made the loan “necessary to support the ongoing operations”.  At the beginning of April, everything was uncertain at the time such that most businesses were applying for the PPP Loan.

After the PPP Loans were granted and it was found that some public companies received loans, on April 23rd, the SBA issued FAQ 31, which is generating some angst in the business community.  This FAQ, asked whether “large companies with adequate sources of liquidity to support ongoing operations” should be allowed to obtain a PPP Loan.  The SBA responded that all borrowers needed to “assess their economic need” for the loan “at the time of the application”.  In particular, the SBA stressed that each applicant needed to assess whether their ability to “access sources of liquidity” at that time were “sufficient to support their ongoing operations in a manner” that would not be detrimental to their business. 

The SBA does not define what sources of liquidity means.  However, they do give the example that a public company would unlikely need the PPP loan as it could “access capital markets” to help with operations.  The Treasury has stated that they will be auditing some of the loans and that everyone receiving a loan over $2 million will be audited. 

The FAQ went on to state that if you received a PPP Loan and you feel that you should not have received the loan in light of the additional guidance, you could repay the full loan by May 7, 2020 to avoid any penalties.  If you do not return the loan and the Government later determines that you should not have received the loan, the potential penalty is “imprisonment of not more than 30 years and/or a fine of up to $1,000,000”.  This is definitely a hefty penalty that will make you want to re-evaluate whether you should have received the loan.

We are here to help talk you through the situation.  At the end of the day, whether to keep the money is entirely your decision.  Some factors that should be considered are the following:

  • At the time of the application, were you showing any decrease in revenues?
  • If not for the loan, would you have needed to furlough employees or had you already done so?
  • At the time of the application, how did operations appear for the next 3 months, 6 months, 12 months based on the information about the virus and the government’s restrictions at the time?
  • Did the business have a source of funds saved that could support the operations during this same time frame?

These are all items that can be used to build your case on obtaining the loan.  If you would like assistance in talking through your situation, please feel free to reach out to us as we are here to help you.