The Small Business Administration (the “SBA”) issued new guidelines for applicants seeking loans under the Paycheck Protection Program (the “Program”). On April 21, 2020, the U.S. Senate approved an additional $310 billion in funding for the Program. The House approved the additional funding Thursday evening, and President Trump is expected to sign the legislation into law quickly.
While the Program is intended to assist small businesses with fewer than 500 employees, several large, publicly traded companies were able to secure funding due, in part, to exemptions for restaurants and hospitality businesses who employ fewer than 500 employees per location. The initial funding of $349 billion, passed as part of the CARES Act on March 27, 2020, was depleted in about two weeks, leaving many small businesses without financial support. The Treasury Department is encouraging these large publicly traded companies to return the funding they received. The SBA has also stated that borrowers who applied for and received loan assistance under the Program prior to the issuance of the new guidance and who repay the loan in full by May 7, 2020 will be deemed to have made their certification in good faith.
The SBA’s updated guidance aims to ensure that the next wave of funding will support the small businesses who need it most. The new guidelines clarify that all applicants must certify in good faith that their loan request is necessary. Applicants are expected to consider their current business activity and to assess whether they are able to obtain funding from other sources. The SBA’s guidelines acknowledge that “it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.” Although the new guidelines do not prohibit restaurants and hospitality companies with 500+ employees from applying, they do discourage it.
As with the initial funding, any loans under the Program are issued on a first-come, first-served basis. The second wave of funding will likely not be available for long. Any small businesses seeking to apply should ensure they have gathered all necessary paperwork to avoid any delays in submitting their applications.
For more information about the Paycheck Protection Program or for assistance with submitting your application, please contact your SGK attorney.