Paycheck Protection Program Loans – An update 10 days after launch

On April 3, the Small Business Association opened the window for guaranteed loans under the Paycheck Protection Program. These loans were authorized when Congress passed the Coronavirus Aid, Relief, and Economic Security Act, commonly known as the CARES Act, into law on March 26, 2020.

Prior to or shortly after the April 3 launch, the U.S. Department of the Treasury and the SBA issued an informational release, Interim Final Rules, a supplement to the Interim Final Rules, two sets of frequently asked questions and answers, and further guidance concerning application of the SBA affiliation rules to PPP loans. The actual final loan application was not released by the SBA until the evening of April 2 – the day before the program was launched.

This flurry of information established and clarified components of loans to be issued under the PPP but also contributed to lender and borrower confusion about program details because not all of the initial releases were internally consistent nor did they answer some of the key questions about loans under the PPP.

Borrowers and lenders sprang into action as soon as possible after the Treasury Department announced the date loan applications would first be accepted.  As a result, some lenders began to accept information from borrowers even prior to April 3 so that the borrowers could rapidly complete the applications when they became available. The SBA stated that PPP loans would be processed on a first-come, first-served basis.  The urgency of the application process was propelled by news media reporting that the allocated funds would be quickly absorbed by the applicant pool on a first come first served basis.  However, as of April 12, it was reported that approximately $205 billion of the $349 billion designated for PPP loans has been allocated based upon loan applications in process.  The Treasury Department has also released statements that it will seek additional allocation of funds, if necessary.

McDonald Hopkins attorneys have assisted many PPP loan applicants assess the application of SBA rules and lender alternatives and have also collaborated with a variety of other service providers assisting borrowers and lenders with PPP loans.  The following comments capture a our collective assessment of the state of play for PPP loans as of April 13:

• Some applicants have experienced very quick funding (within a couple of days) and others have not received funding more than eight days after submitting completed applications.  Some applicants continue to wait for confirmation of loan approval.
• Speed of processing is not dependent upon the size of the lender.  Some applications submitted to the largest lenders have been quickly processed and others have not.  The same variability is true for applications submitted to community banks.
• Applicants must have organizational and employee payroll records carefully organized to timely complete a loan application.
• Collaboration with a specific loan officer at the applicable lending institution may significantly impact the speed, and perhaps even the size, of an applicant’s loan.
• Some applicants have submitted applications to more than one lender when the processing seems to be slow at the first lender.  However, since an applicant may not receive more than one PPP loan, multiple applications may trigger a fraud alert to the SBA.  No more than one completed application should be entered into the SBA portal.
• Lending institutions continue to accept applications for PPP loans.
• The SBA has not modified its existing affiliation rules except to the extent stated in the CARES Act.  Many companies with private equity or VC investors will require an analysis of current rules to determine if they exceed the relevant size limit for PPP loan eligibility or if there are actions that can be taken to enable an applicant to fall below applicable thresholds. McDonald Hopkins has advised many clients on the details of affiliation rules.
• The PPP loan application requires an applicant to certify that the loan is “necessary to support the ongoing operations.” The SBA has not provided further guidance on what circumstances satisfy this requirement. This has caused concern by some applicants. McDonald Hopkins attorneys have assisted officers, managers and directors of applicants to analyze this certification requirement as part of the application process.
• Finance organizations not traditionally considered SBA lenders, such as PayPal and Intuit, have qualified as SBA lenders for PPP loans.
• The SBA’s “E-Tran” system used for the PPP loans repeatedly crashed during the week of April 6, 2020, according to lenders submitting applications.

McDonald Hopkins attorneys have assisted dozens of clients to timely and effectively submit applications for economic relief available as a result of the CARES Act. The combination of programs and complex business structures requires detailed analysis in order to maximize economic relief opportunities. McDonald Hopkins will continue to monitor the development of the PPP and other economic relief measures and will post supplemental information about PPP loans as it becomes available.