If you’re in a law firm, chances are pretty good that you’ve spent a fair amount of time during the past week getting clients up to speed on the requirements for Paycheck Protection Program loans. For businesses that qualify and can comply with the program’s conditions, loans made under the program may indeed turn out to be “free money.” But, a Forbes article from Bruce Brumberg points out that this program isn’t a risk-free proposition:
In a business-law alert, the law firm Quarles & Brady explains the following. “The PPP application requires the applicant to make a number of certifications, including: ‘Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.’ The SBA has not provided any definition or color about the nature or extent of the required impact to operations that would make the loan request ‘necessary to support ongoing operations,’ which has both applicants and lenders skittish about making or accepting the certifications.”
In a similar client alert, the law firm Venable points out: “Borrowers must certify on the application that ‘current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’ There is little guidance as to what exactly this means.”
In its commentary on the program, the law firm Ropes & Gray goes so far as to warn about possible legal exposure under the False Claims Act (FCA): “Already, news and opinion articles are addressing (and members of Congress are saying) that there will be significant oversight over funds distributed through PPP. Private individuals have also made clear that they intend to exercise their rights under the Freedom of Information Act to identify the recipients of PPP loans with a view to identifying those who, in their view, were not the intended beneficiaries of the program.
So, while the program may provide a real lifeline for many borrowers, companies need to understand that there are uncertainties that could come back to bite them — and that, as always, a little healthy skepticism is appropriate when somebody says “we’re from the government, and we’re here to help.”
-John Jenkins, TheCorporateCounsel.net April 8, 2020
