The latest addition to the frequently asked questions for the Payroll Protection Program loans[1] is short, but it clarifies that the warning found in question 31 is not just limited to public companies. Given that the agency is reportedly working on guidance for loan forgiveness, this may mean that information on liquidity and access to credit may become part of the information requested of all applying for forgiveness.

The question, number 37 added on April 28, 2020, is very short and to the point:

37. Question: Do businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: See response to FAQ #31.

For those who need reminding, here is the text of question 31:

31. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” 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 the business. For example, 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, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.

Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

Again, the SBA does not provide any commentary on why the agency felt question 37 was a necessary addition to its guidance. But it certainly suggests that the agency wishes to dispel the belief that only publicly traded companies needed to worry about the need to demonstrate a lack of liquidity to show their certification the loan was necessary was made in good faith.

[1] “Paycheck Protection Program Loans Frequently Asked Questions (FAQs),” April 28, 2020 version, https://www.sba.gov/sites/default/files/2020-04/Paycheck-Protection-Program-Frequently-Asked-Questions_04%2028%2020.pdf retrieved April 28, 2020