Paycheck Protection Program – Small Business Association to Review Appropriateness of Some Loans and Loan Limits for Corporate Groups
Earlier this week the Small Business Association (“SBA”), in consultation with the U.S. Department of the Treasury (“Treasury”), released updated FAQs and a new Interim Final Rule (“IFR”) to provide guidance on uncertainties that were common among many PPP borrowers.
First, on April 29th the updated FAQs confirmed U.S. Secretary of the Treasury, Steve Mnuchin’s, statement that the SBA will review all loans in excess of $2 million, along with other loans as appropriate. While additional guidance is expected as to the extent of the SBA’s review, the underlying intent of requiring the SBA to review certain applications is to ensure that PPP loans are limited to borrowers who have been affected by COVID-19 and are in need of assistance. The Treasury confirmed that the SBA’s review of loan files will not affect SBA’s guarantee of any loan for which the lender complied with its obligations to conduct a good faith review of a borrower’s submission and calculations.
Second, on April 30th, the SBA released the new IFR, which seeks to preserve the funds of the PPP for small businesses in need. Specifically, the IFR states that “businesses that are part of a single corporate group shall in no event receive more than $20 million of PPP loans in the aggregate.” The IFR defines a “single corporate group” as businesses that are “majority owned, directly or indirectly, by a common parent.” This limitation only applies to those loans that were not fully disbursed as of April 30, 2020, so any amount disbursed on or after April 30, 2020, in excess of $20 million, will not be forgivable. While the IFR puts the burden on the borrower to cancel any pending loans that will exceed the $20 million limit, the practical implication to the lender is that anything disbursed on or after April 30th in excess of $20 million will be an unsecured, non-recourse loan for the bank.
Please see the links below for the full text of the updated FAQs and the new IFR.
For more information on the Paycheck Protection Program or other funding programs under the CARES Act contact the attorneys at Rock Fusco & Connelly, LLC. We can be reached via email at firstname.lastname@example.org, or by telephone at (312) 494-1000.