New Stimulus Bill Provides Additional Funding for Paycheck Protection Program and EIDL SBA Loan Programs
A new stimulus bill, the Paycheck Protection Program and Health Care Enhancement Act (the “Act”), was signed into law today, April 24, 2020. The Act provides approximately $484 billion in relief for small businesses, hospitals, and expanded COVID-19 testing. This is the fourth coronavirus relief bill to be passed, bringing the total federal funds allocated to the COVID-19 relief to approximately $2.8 trillion.
Passage of the Act provides much needed additional funding for the Paycheck Protection Program (“PPP”). The Act also provides for additional funding for economic injury disaster loans (“EIDL”), emergency grants provided under that EIDL program, and appropriates funds for relief to hospitals and for coronavirus testing.
Paycheck Protection Program Loan Funding
Under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), $349 billion was allocated to the PPP, a Small Business Administration (“SBA”) loan program geared towards helping small businesses remain operational and retain their workforces during the COVID-19 crisis by providing federally backed loans to fund payroll costs, mortgage interest, rent and utility expenses. For additional background on the PPP, please reference our April 2 posting on the program here: https://www.aalrr.com/newsroom-alerts-3669.
Due in part to the potential for these PPP loans to be fully forgivable, the demand for PPP loans was so extreme that the originally appropriated funds were fully committed just thirteen days after applications were first accepted.
There has been criticism that the PPP program has been improperly used by some businesses that may not have needed the funds to remain solvent. Additionally, critics say that some small business borrowers had a difficult time obtaining the loans because larger banks only took applications from existing and larger customers, or at least made them a priority in accepting applications.
While the Act does not set new parameters on the eligibility for the PPP loans, it does provide an additional $310 billion in funding to the Paycheck Protection Program. In an attempt to curb the perceived abuses with respect to PPP loans, the IRS on April 23rd added a Question Number 31 to its Paycheck Protection Program Loans Frequently Asked Questions (FAQs).
FAQ 31 addresses whether “businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan”. In its answer to this FAQ, the IRS points to the requirement that all businesses that apply for a PPP loan must, in connection with applying for the loan, certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
The IRS notes that, in order to make this certification, borrowers need to adequately assess their economic need for the PPP loan at the time of the loan application. Additionally, although the CARES Act suspends the requirement that a borrower be unable to obtain credit elsewhere, the IRS now apparently requires, through FAQ 31, that the certification referenced above be made “taking into account [the borrower’s] current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business.” As an example of what the IRS perceives as an abuse, the IRS states that it is doubtful that a publicly held company with substantial market value will be able to make this certification in good faith, and that such a company will need to be prepared to demonstrate to the SBA that it’s certification was accurate.
While IRS FAQ 31, on its face, appears to apply only to businesses owned by large companies with adequate sources of liquidity, and the example in this FAQ refers to publicly held companies, we believe it is likely that the IRS may apply this standard to all businesses applying for a PPP loan. Since this IRS guidance was just issued, and since it at least arguably adds a new requirement to the eligibility for PPP loans, the IRS added a caveat to its answer to FAQ 31 stating that any borrower that applied for a PPP loan prior to the issuance of FAQ 31 will be deemed to have made its certification in good faith as long as the loan is repaid by May 7, 2020.
Additionally, Congress tried to deal with some of the deficiencies in the PPP by attempting to get the funding to businesses needing it the most by setting aside $60 billion of the newly allocated funds for community lenders and credit unions. Of this $60 billion, $30 billion is allocated to financial institutions with less than $10 billion in assets and another $30 billion to financial institutions with assets between $10 billion and $50 billion. The intent is to provide these smaller banks and financial institutions with the ability to lend to small businesses in their communities.
Economic Injury Disaster Loans
In addition to the expanded PPP loan funding, the Act allocates another $60 billion to the EIDL program, which is another SBA loan program which provides disaster relief in the form of loans made to small businesses which have been negatively impacted by COVID-19. Please find additional information on the EIDL here: https://www.aalrr.com/newsroom-alerts-3655.
Of this additional $60 billion, $10 billion will be allocated to emergency grants to be provided to EIDL applicants.
Significantly, the Act also expands the class of eligible borrowers for EIDL loans to include agricultural businesses with not more than 500 employees.
Additional Funding Provided Under Act
In addition to providing the increased funding to the PPP and EIDL SBA loans, the Act also provides for:
- $75 billion in funding to reimburse eligible health care providers for lost revenues or expenses directly attributable to COVID-19; and
- $25 billion to support coronovirus testing.
Actions to Take if You Haven’t Received Your PPP loan or EIDL
Now that the Act has been passed and the PPP and EIDL have, at least for now, available funding, it is critical that businesses that are eligible for and have a need for these loans proceed with the loan process. If you have already applied for a PPP or EIDL loan which has not yet funded, you should contact your lending institution to check on the status of the application/funding. Keep in mind that a business can only apply for one PPP loan.
We understand that Congress is already working on another stimulus package that we anticipate will be passed in the near future For now, however, businesses which have not already received PPP loans can take advantage of the increased funding to apply for or continue with their application process for these loans.
If you have questions on the Paycheck Protection Program or the CARES Act or Paycheck Protection Program and Health Care Enhancement Act, you can reach out to the attorneys at Atkinson, Andelson, Loya, Ruud & Romo.