Businesses that received Paycheck Protection Program (PPP) loans are reviewing their certifications in the PPP loan application that we fondly refer to as the “uncertainty certification.” The SBA initially required businesses to complete this review by May 7. At the request of several industry groups, the SBA has extended this date to May 14.
The uncertainty certification is: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” As we discussed in a prior article, the text of the certification appears to require identifying uncertainty specifically arising from the COVID-19 pandemic, rather than the general, ambient uncertainties that businesses face at all times. Nothing in the certification indicates that a business would have to assess the other sources of liquidity available to the business.
Things changed, however, when businesses owned by large corporations with perceived access to unlimited liquidity (e.g., Ruth’s Chris, Potbelly and Shake Shack) started receiving PPP loans. In response, political leaders could have pointed out that (1) these restaurants were as empty as the local diner with employees equally unemployed and (2) Congress had made a policy decision to make PPP loans available to restaurants and hotels owned by large corporations. As the recent bankruptcy filing by J Crew demonstrates, there is a valid reason and need for this policy choice. Political leaders, however, did not do this.
Instead, we learned that the certification “always” included a requirement to assess other sources of liquidity and that it was “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.” Further, the SBA announced that businesses would be deemed to have made the uncertainty certification in good faith if they returned the PPP loan proceeds by May 7. This new guidance, with its invitation to return the money, led to widespread concern about taking or keeping a PPP loan – for example, this article suggesting that businesses had to first exhaust all other sources of liquidity before receiving a PPP loan.
As explained in this article, we believe that the updated FAQs were meant to provide guidance and help resolve uncertainty about whether a business made the uncertainty certification in good faith. That is, we believe that the SBA was advising business to:
As explained in this article, we maintain this position after the explicit expansion of this guidance to PPP loan borrowers owned by private companies, which followed the uproar over the Los Angeles Lakers receiving a PPP loan. As we have noted in our articles, the answer to the questions could be interpreted as applying to all borrowers with access to capital, not just those owned by well-resourced private or public companies.
Still, because the SBA first announced the guidance on April 23 and only extended it to all businesses until April 28, the May 7 deadline did not give businesses a lot of time to undertake the necessary reexamination of their prior certification. The SBA now has extended the deadline for a no-questions-asked return of the PPP loan proceeds (referred to by some commentators as “amnesty”) to May 14. We strongly encourage anyone thinking of returning their PPP funds to delay such action until the last possible day because it is certainly possible that the certification standards will continue to evolve in ways that alter your decision; use the delay to really analyze comfort with the certification.
Speaking (presumptively) on behalf of all who are working diligently to substantiate the certification (so we know whether to return the PPP funds), we are most appreciative of the extra week.
Before proceeding, please note: If you are not a current client of Lane Powell PC, please do not include any information in this email that you or someone else considers to be confidential or secret in nature. Prior to the establishment of a lawyer-client relationship, unsolicited emails from non-clients containing confidential or secret information cannot be protected from disclosure.