Treasury Releases Additional Guidance on PPP Loans Confirming Private Equity Firms and Hedge Funds Are Ineligible and Emphasizing Certification Requirements

3 min

Treasury released additional guidance today (found here) regarding the Paycheck Protection Program (PPP), just hours before President Trump signed the Paycheck Protection Program and Health Care Enhancement Act, which appropriates an additional $310 billion for PPP funding, an additional $10 billion for Emergency Economic Injury Disaster Loan Grants, and $50 billion for SBA Disaster Loans.

Perhaps most notably, Treasury's guidance might have serious implications for private equity firms and the businesses they own. Indeed, Treasury confirmed that hedge funds and private equity firms are ineligible to receive PPP funding, and also confirmed that SBA's affiliation rules apply to businesses owned by private equity firms. Both of these points have been well understood prior to today's guidance. But today's guidance specifically calls out private equity-owned businesses to "carefully review the required certification on the Paycheck Protection Program Borrower Application Form . . . stating that '[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.'"

Today's guidance comes on the heels of yesterday's new FAQ, which pressures publicly traded companies to return PPP loans in full by May 7 through the addition of a new economic necessity requirement for making a "good faith" application certification. This additional emphasis on the certification requirements for private equity-owned businesses could exert similar pressure to return their PPP loans as well. (Read more about Treasury's April 23, 2020 guidance here.) Businesses that return their loans in full by May 7 will be deemed to have made their application certification (that funds are necessary given the current economic uncertainties due to COVID-19) in good faith.

In addition to the guidance for hedge funds and private equity firms, Treasury also provided some important new directives to certain other businesses:

  • Businesses in bankruptcy proceedings at the time of application or before the loan is disbursed are ineligible for PPP funding. An applicant who becomes a debtor in a bankruptcy proceeding and fails to inform the lender will be deemed to have used the funds for unauthorized purposes.
  • Hospitals that are otherwise eligible for a PPP loan will not be rendered ineligible because they are owned by a state or local government if they receive less than 50% of their funding from state or local government sources, exclusive of Medicaid.
  • Legal gaming businesses that are otherwise eligible for a PPP loan are not rendered ineligible because of their receipt of legal gaming revenues, but businesses receiving illegal gaming revenues remain ineligible.
  • Participation by a business in an Employee Stock Ownership Plan (ESOP) does not render the business "affiliated" with the ESOP.