Recent statements by U.S. government officials indicate greatly increased odds that recipients of CARES Act Paycheck Protection Program (“PPP”) loans will face scrutiny and potential government action.
Today, in a CNBC interview, U.S. Treasury Secretary Steven Mnuchin announced that the U.S. Small Business Administration (“SBA”) will conduct a “full audit” of all PPP loans over $2 million before offering loan forgiveness. Secretary Mnuchin also noted that the loans are for small businesses, not well-financed businesses with access to other sources of liquidity – and specifically called out private equity and venture capital firms as among those that may have sufficient liquidity, along with public companies and other big businesses. This builds on recent SBA guidance that borrowers consider “their ability to access other sources of liquidity sufficient to support their ongoing operations” before certifying that “current economic uncertainty makes this loan request necessary.” Today, the SBA also confirmed that this guidance applies to public and private companies alike. Secretary Mnuchin noted the risk of “criminal liability” for applicants who falsely certify the loans are necessary.
Today’s developments follow unrelenting investigative reporting of loan recipients as well as commentary by legislators and other political figures. In the glare of this attention, some larger companies, including prominent restaurant chains and sports teams, have returned PPP funds.
There’s an opportunity for recipients to reconsider in light of the evolving government guidance. The SBA has offered borrowers a deadline of May 7, 2020 to repay monies and avoid liability for misrepresenting their necessity. Companies may put in place robust processes around that assessment to prepare for coming audits or even return the loans if they conclude that other funding sources are available to keep their businesses afloat.
Please visit Goodwin’s Coronavirus Knowledge Center, where firm lawyers from across the globe are issuing new guidance and insights to help clients fully understand and assess the ramifications of COVID-19 and navigate the potential effects of the outbreak on their businesses.