Despite all of the ink spilled about the “economic uncertainty” certification that Paycheck Protection Program (PPP) loan applicants must make, careful attention should be paid to another PPP certification — the “Buy American” certification. In the standard PPP loan application issued by the Small Business Association (SBA), applicants must certify the following: To the extent feasible, I will purchase only American-made equipment and products. It is not clear what “feasible” means, and whether there is a cost differential that would justify buying or leasing cheaper, foreign-made goods. So far, SBA has not provided answers and, even though the “Buy American” certification appears in other non-PPP loans, it has not been enforced historically. That does not mean the certification won’t be enforced here, particularly in light of the attention paid to the billions of dollars issued under the PPP.
The Small Business Investment Act (SBIA) itself provides the underlying policy rationale for the Buy American certification. Section 102 of the SBIA provides:
It is the intention of the Congress that in the award of financial assistance under this Act, when practicable, priority be accorded to small business concerns which lease or purchase equipment and supplies which are produced in the United States and that such business concerns receiving such assistance be encouraged to continue to lease or purchase such equipment and supplies.
15 U.S.C. § 661. The Buy American certification appears to be targeted toward the second policy mandate of the statute requiring the SBA to encourage small businesses receiving loans to utilize the loan proceeds to continue to buy American.
The Buy American certification is not unique to the PPP. The SBA includes it in the standard borrower information form (Form 1919) applicable to the 7(a) loan program, and it has been included on Form 1919 since it was first released in 2006. Despite its long existence, we were unable to find a single instance in which the SBA investigated and/or enforced the Buy American certification. The lack of enforcement, however, does not assist borrowers in divining how the Buy American certification would be interpreted by the SBA, but it does suggest that the usual 7(a) borrower need not be overly concerned with compliance.
While the Buy American certification has not historically been enforced in the context of other 7(a) loans, the PPP is a different creature entirely. The federal government has indicated that it intends to audit PPP loans in excess of $2 million with respect to the economic uncertainty certification, and it is entirely possible that it also will scrutinize the Buy American certification in connection with its audits.
PPP borrowers have certified that they will, to the extent feasible, buy American, and — despite the historical lack of enforcement — they should take (and appropriately document) reasonable measures to do so.