Clarifying the Paycheck Protection Program Loan Guidelines
Posted on May 8, 2020
By Scott Zickefoose, CPA, CM&AA, Transaction Advisory and Tax Senior Manager
Frequently Asked Questions and Interim Final Rules Bring Clarity to Paycheck Protection Program Loan Borrowers
The Paycheck Protection Program (“PPP”), one of the most favored business focused programs under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, allocated funding to small businesses through new and enhanced loan programs administered by the Small Business Administration (“SBA”). The United States Department of the Treasury (“Treasury”) issued additional regulations as it relates to the PPP and has been issuing Frequently Asked Questions (“FAQs”) and Interim Final Rules to inform lenders and borrowers on technical issues left unresolved in the Act.
“Paycheck Protection Program Clarifications for Borrowers” Excerpt:
FAQ 31: Qualifying for a Paycheck Protection Program Loan
In a recent Frequently Asked Question (FAQ 31) issued on April 23, 2020, Treasury is asked, “Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?”
It is believed that this FAQ originates from several public companies, such as Shake Shack, that made headlines after the first round of PPP funds were exhausted. The question hinges on whether or not large companies can properly certify the need for the PPP. In its response to FAQ 31, Treasury again confirms the waiving of traditional “credit elsewhere” provisions, which require applicants to exhaust other avenues of credit prior to applying for specific loans. However, FAQ 31 indicates that borrowers must still review their current business activity and their ability to access other sources of liquidity sufficient to support their operations in making the requisite certifications for the PPP loan. These two comments seem to a large degree contradictory. If a business is not required to exhaust others avenues of credit, how and to what degree does it need to consider “adequate sources” of liquidity? Treasury indicates 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.
On April 28, 2020, Treasury issued FAQ 37, which confirms that the standards set forth in FAQ 31 are applicable to businesses owned by private companies.
There are several things to note when analyzing Treasury’s response to FAQ 31.
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