SBA Releases Paycheck Protection Program Guidance on Capping Loan Amounts for Corporate Groups and Provides Additional Clarity on Loan Eligibility and Forgiveness
On April 29 and April 30, 2020, the Small Business Administration (“SBA”) provided additional guidance on the Paycheck Protection Program (“PPP”) through the issuance of a new PPP Interim Final Rule (the “Corporate Group Rule”), which supplements the first PPP Interim Final Rule, published on April 2, 2020, and the subsequent interim final rules issued since that date, as well as issuing updates to the Frequently Asked Questions document (“FAQs”) originally published on April 2, 2020 and updated regularly thereafter. The PPP is a small business loan program established pursuant to Title I of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act signed by President Trump on March 27, 2020, and supplemented by the Paycheck Protection Program and Health Care Enhancement Act (the “PPP/HCE Act”), which provided additional funding for the program.
The Corporate Group Rule includes the following significant information on requirements for corporate groups:
Limitation on Loans to Corporate Groups. Businesses that are part of a single corporate group cannot receive more than $20 million of PPP loans in the aggregate.
a. A single corporate group consists of all businesses majority owned, either directly or indirectly, by a common parent.
b. This limitation applies immediately to all loans that have not been fully disbursed by April 30, 2020. For loans that have been partially disbursed by that date, this limit applies to any further disbursement that would cause the total PPP loans to the single corporate group to exceed $20 million.
c. Any PPP applicant who has already applied for or received loans in excess of $20 million is obligated to notify the lender of this fact and withdraw or request cancellation of any pending application or approved loan that does not comply with this rule.
d. Failure to withdraw or request cancellation of a noncompliant application or loan shall be deemed a use of PPP funds for unauthorized purposes, and will result in the loan being ineligible for forgiveness.
e. Lenders may rely upon an applicant’s representation concerning compliance with this rule.
f. This rule applies in addition to the SBA’s affiliation rules, and does not replace the borrower’s independent obligation to comply with those rules.
The latest FAQs guidance includes the following information:
1. Automatic SBA Review of PPP Loans over $2 Million. The SBA will review all loans in excess of $2 million, as well as other loans where it deems review appropriate, following submission of the borrower’s loan forgiveness application.
a. The outcome of this review will not affect the SBA’s guarantee of a loan as long as the lender has complied with its application review obligations under paragraphs III.3.b(i)-(iii) of the Initial Rule issued April 2, 2020.
b. Borrowers who have received more than $2 million in loans should be prepared to answer questions and demonstrate their good faith basis for the necessity of the loans, as outlined in our April 24 alert.
2. Changes of Ownership. A business that was in operation on February 15, 2020, but underwent a change in ownership following that date, is eligible for a PPP loan as long as that business meets all other eligibility criteria.
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