New Repayment Safe Harbor for Companies That Didn’t Need a PPP Loan

Dunlap Law Insights

On Friday, the SBA issued another set of rules for the Paycheck Protection Program. No, these are not the much-needed rules and guidance on forgiveness, which we still await. These new rules cover a variety of topics, including certain requirements for promissory notes for lenders, clarification on certain eligible businesses (including a prohibition on hedge fund participation), eligibility of companies with ESOPs, and eligibility of businesses currently in bankruptcy.

Perhaps the most notable piece is a new repayment safe harbor for businesses that obtained a PPP loan but that may not have needed it. By way of background, each borrower had to provide in good faith the following certification in the PPP loan application:

Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.

Under the new rules, borrowers that obtained a PPP loan but that can’t justify the certification (after the fact) can “repay the loan in full by May 7, 2020 [and] be deemed by SBA to have made the required certification in good faith.”

These rules follow new guidance in the program FAQs announced the day before. That guidance provided that borrowers must take 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 the business.” The guidance further notes that it is unlikely that a larger publicly traded company will be able to make the required certification in good faith.

In light of recent outcry regarding certain larger companies taking PPP loans (many of which are now repaying the loan), it seems as though these new rules and recent guidance are aimed at larger companies. However, it is unclear what investigations and enforcement actions to expect if a company is deemed to have been unable to make the certification in good faith, but if the company never took advantage of the safe harbor. If you have a concern about your PPP loan certification, you should discuss this rule with your legal and financial advisors.