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Paycheck Protection Program and Health Care Enhancement Act Authorizes Additional Funding
On Friday, April 24, 2020, the President signed into law a bill that authorizes several billion dollars in additional funding for the Paycheck Protection Program (PPP) and the SBA’s Economic Injury Disaster Loan (or EIDL) program, as well as providing more funding for hospitals and testing for COVID-19.
The legislation, called the Paycheck Protection Program and Health Care Enhancement Act, provides the following funding and changes to the small business programs:
- Over $300 billion for the PPP has been added to the original $349 billion allocated under the CARES Act.
- Funding for EIDL grants has been increased from $10 billion to $20 billion, and an additional $50 billion has been appropriated to the EIDL program.
- The new Act also allows agricultural enterprises with no more than 500 employees to receive EIDL loans.
The Act also appropriates additional funds for healthcare providers and testing:
- The Act increases original appropriations from $100 billion to $175 billion for reimbursement to hospitals and healthcare providers for COVID-19 related expenses and lost revenue.
- $25 billion is further appropriated for the research and development of COVID-19 testing. Of this amount, $11 billion is allocated to states, localities, and territories, and these funds can be used for employer testing.
To view the text of the Act, please click here. In light of the new funding appropriations, according to information released from the SBA, the SBA will resume accepting PPP and EIDL applications beginning today, April 27.
Updated FAQs on the PPP: Economic Necessity Certification Requires Careful Analysis
The SBA has also issued revised guidance in relation to the PPP. New guidance, the most recent of which is dated April 26, 2020, relates in part to the “economic necessity” certification made by applicants applying for a PPP loan, along with the number of employees to be used in determining eligibility.
On the current borrower certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” the guidance suggests that “businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations” will not be able to make the necessity certification, pointing specifically to public companies with access to the capital markets.
The guidance, however, also suggests that borrowers making the “necessity” certification “should take 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 borrowers that believe they may not be able to make the certification given the new guidance, where PPP funds have already been received, the SBA will deem the certification made in good faith if the funds are paid back in full by May 7, 2020.
The revised FAQs also provide guidance on housing stipends to employees, which can be included in the calculation of payroll costs, determining whether an individual employee’s principal place of residence is in the U.S. and calculating the number of employees of an applicant for eligibility purposes.
For a copy of the updated FAQs, please click here.
New Interim Rule on the PPP: Hedge Funds and Private Equity Funds Explicitly Excluded
On April 24, 2020, the SBA released an Interim Final Rule which reiterates its available May 7th “safe harbor” on the “economic necessity” certification and also makes explicit that hedge funds and private equity firms are not eligible for a PPP loan on the basis that such entities are primarily engaged in investment or speculation. However, the Interim Final Rule expressly provides that portfolio companies of a private equity fund are eligible for PPP loans as long as they can meet the eligibility requirements in light of the SBA affiliation tests and so long as they can meet the “necessity” certification (and again the SBA cautions on carefully making such a certification).
The interim final rule also states that hospitals owned by governmental entities are eligible for PPP loans if they receive less than 50% of their funding from state or local government sources, and the Interim Final Rule continues to leave great deference to lenders in using their own promissory notes and a number of terms for PPP loans.
An additional Interim Final Rule was also released on April 27, 2020 with guidance for seasonal employers.
We continue to follow these programs and updates carefully to provide guidance to our clients. Our corporate and finance teams are available to assist companies in analyzing and assessing financing options, as well as working with existing facilities and lenders to determine next steps as necessary. Our teams stand ready and available to assist all companies with these decisions.
Jeffer Mangels Butler & Mitchell LLP is a full-service law firm committed to providing clients with outstanding results. Our corporate lawyers serve numerous middle-market companies, large publicly traded corporations and emerging entrepreneurial businesses with a full range of financing, transactional and operational counsel, as well as in all aspects of mergers and acquisitions.
