As guidance in this area is being released regularly, we recommend you read all of our blogs on this subject. All the blogs in the Paycheck Protection Program series are here: Updates #1, #2, #3, #4, #5, #6, #7, #8, #9, #10, #11, #12, #13, #14
Our last Paycheck Protection Program (PPP) blog on Thursday, April 16, covered long-awaited guidance for self-employed individuals and partnerships. However, that same day, the SBA announced the PPP ran out of money. Today, we bring you good news about additional funding and an update on eligibility guidance.
Additional PPP Funding
This afternoon, April 24, the President signed into law the Paycheck Protection Program and Health Care Enhancement Act. The Act provides an additional $310 billion in new funding for the PPP. Of the $310 billion, $60 billion will be specifically set aside for smaller banks and credit unions. The law also expands the Economic Injury Disaster Loan (EIDL) program by $60 billion: $10 billion for grants and $50 billion for loans. This is welcome news for businesses that desperately need funding to weather the economic uncertainty created by the COVID-19 pandemic.
Eligibility Guidance Updated
This morning the Treasury issued their 4th interim final rule addressing lender requirements for promissory notes, providing additional guidance on the affiliation rules, and addressing specific eligibility issues that are now relevant due to the additional funding available.
The PPP eligibility issues addressed include:
- An affirmative statement that hedge funds and private equity firms are ineligible for PPP loans;
- Government owned hospitals are eligible for PPP loans if the hospital receives less than 50% of its funding from state or local government sources exclusive of Medicaid;
- Businesses that receive legal gambling revenues are eligible for the loans without the strings previously attached in the 3rd interim final rule;
- Affirmation that a business presently involved in bankruptcy, inclusive of a business that becomes involved in bankruptcy prior to PPP loan disbursement, is ineligible for the loans; and
- A friendly reminder that PPP applicants are required to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
Regarding the last item above, if you have been following some of the news around the PPP, you have likely heard significant debate and discussion amongst Senator’s and the Treasury Secretary that began when the original PPP funds were depleted. In response to that debate, the Treasury released new FAQ #31 yesterday, April 23, prior to the issuance of the above guidance today.
The FAQ indicates large companies with adequate resources of liquidity to support the business’s ongoing operation must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations (interim final rules) at the time of the loan application. Borrower’s must make the certification regarding current economic uncertainty 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.
The FAQ, and 4th interim rule, provide a limited safe harbor to allow borrowers that determine they obtained a PPP loan based on a misunderstanding or misapplication of the required certification standard to repay the PPP loan funds in full by May 7, 2020 without penalty.
An important aspect of the PPP loans is to review and understand the certifications and authorizations outlined on page 2 of the borrower application. There are legal ramifications for violating the certifications and authorizations and we recommend they be reviewed by borrowers’ legal counsel. “Large companies” and “adequate resources” were not defined by the SBA in their updates contributing to the uncertainty surrounding this issue.
We will continue providing updates when relevant information becomes available. If you have questions about how to navigate the PPP loan application process, or how other CARES Act incentives may apply to your business, please call on us. You can stay up to date on PPP guidance and tax issues relating to the coronavirus at our COVID-19 Tax Resource Center.