Well, you can’t say we didn’t warn you. A number of Paycheck Protection Program loan recipients are receiving heavy duty blowback from the media and politicians about whether they’re entitled to the loans they received. If your client finds itself in this position, it may well be asking — “should we give the money back?”
That question may be even more pressing in light of new FAQ #31 that the SBA issued yesterday morning, which addresses the certification of need that’s required in order to access the funding. The FAQ says 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.”
As a recent Stinson memo points out, that guidance is — like almost everything the SBA has said about this program — as clear as mud:
As has become typical of the PPP, every attempt at clarification also raises new uncertainties. What is the threshold for “substantial market value”? Does a public company that would currently be unable to raise equity capital on favorable terms really have “access to capital markets” in a meaningful way? Should any debt financing be considered “significantly detrimental” to a business as compared to equity capital in light of the additional cash load it places on the borrower? If a borrower has undrawn but committed capital under its current financing facilities, can it still make the good faith certification required by the PPP application?
The memo says that in light of the very specific certifications and representations required of the applicant in its loan application, these questions should be considered with great care — and companies that aren’t comfortable with their answers should withdraw loan applications or repay loans that have already been received.
-John Jenkins, TheCorporateCounsel.net April 24, 2020
