The rules governing the Paycheck Protection Program (PPP) have continually been updated through FAQs and other guidance by the Small Business Administration (SBA) and U.S. Department of the Treasury. The latest FAQ document, issued April 23, 2020 (found here), responds to news stories concerning large publicly traded companies obtaining PPP loans.

The new guidance requires all borrowers to "assess the economic need for a PPP loan" in connection with their "good faith" application certification that "[c]urrent economic uncertainty makes th[e] loan request necessary to support . . . ongoing operations." Borrowers must now make this certification by "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."

This directive represents a significant departure from the plain language of the CARES Act and guidance published since its March 25, 2020 enactment. Indeed, the guidance itself acknowledges an apparent inconsistency with the CARES Act's dispensation of the typical SBA requirement for 7(a) loans that borrowers show they are unable to obtain "credit elsewhere." Moreover, in the CARES Act provisions deferring payments of principal and interest on PPP loans for at least 6 months, Congress explicitly presumes that eligible borrowers have been adversely affected by COVID-19.

The guidance now assumes that publicly traded companies with "substantial market value and access to capital markets" will be "unlikely" to make the certification in good faith and should be "prepared to demonstrate to the SBA . . . the basis" for their certifications. However, borrowers will be deemed to have (retroactively) made a "good faith" certification if (1) their application predates the new guidance, and (2) the loan is returned in full by May 7. Moreover, this guidance likely applies beyond publicly traded companies.

The new guidance could have serious implications for all borrowers even small private businesses – especially those that have not yet experienced a tangible economic hardship as a result of the COVID-19 emergency. Accordingly, unless or until more guidance is issued, borrowers should consider documenting their reasoning for applying for and obtaining PPP funds.

Venable will continue to monitor for any further updates.