New Limitation of SBA Group of Companies and Additional Guidance on PPP Lending | Bradley Arant Boult Cummings LLP
Over the past few days, the Small Business Administration (SBA) has provided additional answers to frequently asked questions about the Paycheck Protection Program (PPP) and released another interim final rule on PPP loan administration. Applicants and borrowers should be made aware of these updates to ensure compliance with the latest program requirements and to avoid any non-compliance issues that may arise.
SBA limits eligibility based on business groups
Under the last provisional final rule, companies which are “majority owned, directly or indirectly, by a common parent company” are considered as a single group of companies and cannot receive more than a total amount of 20 million euros. dollars in PPP loans. This limitation takes effect immediately for all loans that have not been disbursed by April 30, 2020.
In addition, it is the responsibility of the PPP loan applicant to inform their lender if the group has applied for or received loans in excess of this limit. If so, the requester must withdraw their request or request the cancellation of a pending or approved request. If the applicant does not do so, the loan cannot be forgiven.
The rule makes it clear that the SBA’s membership rules and any deviations from membership requirements permitted by the CARES Act continue to apply regardless of this corporate group limitation. So while a business may be eligible under the expanded criteria set out in the CARES Act, it may not be able to obtain a loan if other entities within its corporate group have received loans. PPP that encroach on this new limit.
Review of SBA and Treasury Loans
Additionally, on April 29, the SBA released additional answers to frequently asked questions about PPP loans. In question 39, the SBA explained that it and the Treasury Department will review, after the lender submits the borrower’s loan forgiveness request, all PPP loans over $ 2 million, plus any other loans, if any, to ensure loans are limited to eligible borrowers in need. In doing so, the SBA referred to its prior guidelines to question 31 regarding applicant liquidity and importance to “all borrowers. [to] carefully review the required certification that ‘[c]the current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations. “repays the loan in full in May 7, 2020, “Will be deemed by the SBA to have performed the required certification in good faith” and may avoid liability.
The latest SBA guidelines and the Interim Final Rule not only reflect an effort to place some limitation on loan eligibility in the present, but also point to a next wave of compliance review. Borrowers should be prepared to respond and should make every effort to clearly document the business terms that existed at the time a PPP loan certification was made.