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Treasury, SBA weigh in on PPP loan certification and secondary market sales

Federal Issues Agency Rule-Making & Guidance Department of Treasury SBA CARES Act Covid-19

Federal Issues

On April 23, the Department of Treasury, and the Small Business Administration (SBA) updated their frequently asked questions (FAQs) list for the Paycheck Protection Program (PPP) to address whether a business owned by a large company is eligible for a PPP loan. A small business borrower must certify, in good faith, that at the time an application was submitted for a PPP loan, the borrower believed that the economic situation created by the Covid-19 pandemic made it necessary to apply for the loan in order “to support the ongoing operations” of the company. The FAQ instructs the borrower to consider other sources of liquidity other than PPP funds that could support the borrower’s current business activity. Though lenders may rely on the borrower certification of need, the guidance points out that a borrower must have a good faith basis necessitating the loan. Moreover, the guidance suggests that a public company with “substantial market value and access to capital markets” would likely not be able to make this good faith certification. For small businesses that applied for a PPP loan before the issuance of this FAQ, the SBA will find that the borrower certification was made in good faith if the borrower’s PPP loan is repaid by May 7, 2020.

Earlier on April 17, the SBA added FAQ number 30 to its FAQ list, which asked whether a PPP loan may be sold into the secondary market. The guidance provided by the SBA and the Department of Treasury reiterated information from the interim final rule issued on April 2, which implemented sections 1102 and 1106 of the CARES Act regarding sales into the secondary market:

  • “A PPP loan may be sold into the secondary market at any time after the loan is fully disbursed.”
  • “A secondary market sale of a PPP loan does not require SBA approval.”
  • “A PPP loan sold into the secondary market is 100% SBA guaranteed.” and
  • “A PPP loan may be sold on the secondary market at a premium or a discount to par value.”