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PPP loan expansion moves ahead as Treasury provides guidance on certification of necessity

April 23, 2020

This week congressional Democrats, Republicans and members of the Trump administration concluded negotiations on a bill to extend and increase the Paycheck Protection Program (PPP). The House of Representatives passed the bill April 23 and sent it to President Trump for signature. The bill funds roughly $310 billion more in loans for the PPP, increasing the size of the program to $660 billion in total. The initial $350 billion in loans was exhausted last week.

To address concerns that the smallest, most vulnerable businesses were overlooked in the first tranche of PPP loans, $60 billion of the new funds will be set aside for disbursement through medium, small and community lenders.

Most banks have continued to accept applications for PPP loans, even after the Small Business Administration quit approving them when the funds were depleted. As a result, there is already a backlog of demand for the new pool of loans. Businesses that need this funding and do not have an application pending with a bank should move quickly to “get in line.”

Created as part of the $2.2 trillion stimulus bill Congress passed in March, the PPP is intended to help small businesses maintain employees on their payroll and cover other essential expenses for roughly two months. Borrowers may request forgiveness of loans if they maintain the size of their workforce and meet other requirements.

Also on April 23, the Treasury provided guidance on the certification of necessity that is required to obtain a PPP loan. As required by the CARES Act, the PPP loan application requires applicants to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The disclosures that large public companies have obtained large loans, several of them using special rules for restaurants and hotels, have drawn public and congressional concern that the program is not helping the small, vulnerable businesses for which it was intended.

New question 31 in the Treasury’s FAQ document indicates that a borrower must make this certification in good faith, considering its current business activity and ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The guidance goes on to put a special focus on public companies, saying 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.” The guidance provides that companies that may have concerns about whether they satisfy these standards may repay loans by May 7 without penalty as to the certification.

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