SBA Issues New Guidance Regarding PPP—“Good Faith Rules and What You Should Know”

By Matthew E. Cox of Smith Currie & Hancock LLP 
Published April 24, 2020

On April 23, 2020, the Small Business Administration (SBA), in consultation with the U.S. Department of Treasury, issued additional guidance to its Frequently Asked Questions (FAQ) section, a copy of the FAQ can be found here. When the CARES Act was passed, the Act waived the requirement that the borrower could get credit elsewhere. Specifically, need was implied in the Act, providing in part that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” However, after Shake Shack, a publicly traded company obtained $10 million, and after many expressed outrage over Harvard University, with an estimated $40.9 Billion endowment, having also obtained a PPP loan, the SBA issued a new guideline by way of Question 31, which provides: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, 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.

Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. (emphasis added)

The “Safe Harbor” provision is clear in the final sentence of the Answer. If you have taken out the loan and did not need it, taking into account “other sources of liquidity sufficient to support” your “ongoing operations in a manner that it not significantly detrimental to the business” such as public companies with access to capital markets, pay it back in full by May 7, 2020, and all is forgiven. If not, the Act opens the borrow up for an investigation by the Federal Government for fraud, among other charges, and provides the opportunity for whistle blowers to make allegations under the False Claims Act, 31 U.S. C. §§ 3729-3733. This may be the first of such “guidelines.” You should consult with your legal advisor if you are unsure how this new guideline applies to your company.

Matthew E. CoxMatthew E. Cox is a Partner and heads the Columbia, South Carolina office of Smith Currie & Hancock LLP. He focuses his practice in the areas of Construction Law, Commercial Law and Government Contracts, with his emphasis in litigation and compliance. He represents a variety of private clientele in the construction industry from design professionals, to owners and developers, to general contractors and subcontractors. He can be reached at or 803.999.1273.