Treasury Provides New Standard for PPP Loan “Good Faith” Certification

The Treasury Department continues to update a list of frequently asked questions regarding the CARES Act including the Payroll Protection Program (PPP). A recent update instructs borrowers of the PPP loan to certify in good faith that their PPP loan request was needed under a new standard:

31 & (37) Question: Do businesses owned by large companies (or private 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.

Assessment of this new standard should be made before the newly released deemed good faith deadline to repay the loan of May 14th. Borrowers can potentially repay the loan or should build a contemporaneous file to support how they meet the new standard.

We are available to clients who request assistance in assessing and documenting this standard. To discuss any questions you may have, please contact a member of your engagement team or reach out to us via our website.