Mo’ Money, Mo’ Rules: Amendment To and Further Guidance on the CARES Act

Amendment to the CARES Act

On April 24, 2020, President Trump passed into law the Paycheck Protection Program and Health Care Enhancement Act, which amends certain provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).  The amendments relevant to small to medium-sized businesses are as follows:

• The amount authorized for the Paycheck Protection Program (“PPP”) increased from $349 billion to $659 billion, meaning there is an additional $310 billion appropriated to loans under the PPP.
• An additional $50 billion is earmarked for the economic injury disaster loan (“EIDL”) program under Section 7(b) of the Small Business Act.
• An additional $10 billion is appropriated for emergency EIDL grants.
• Agriculture enterprises, being small business concerns engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural-related industries, which historically have not been eligible for EIDLs, are now eligible for EIDLs and emergency grants as long as each has 500 or fewer employees.
• There is a special set aside of the newly appropriated monies of not less than $30 billion for PPP loans to be made by certain insured depository institutions, credit unions, and community financial institutions, for the purpose of focusing on the development of urban neighborhoods and rural areas ignored by most lenders.

As PPP funds ran out last week, the Small Business Administration (“SBA”) stopped accepting applications; however, with more funds available for PPP loans, it is expected that the SBA will begin accepting applications again as early as Monday, April 27, 2020.

Fourth Interim Final Rule

Additionally, the SBA published a fourth Interim Final Rule titled “Interim Final Rule on Requirements for Promissory Notes, Authorizations, Affiliation, and Eligibility.”  In pertinent part, this Interim Final Rule clarifies the following:

• Hedge funds and private-equity firms are not eligible for PPP loans.
• Portfolio companies of private-equity funds are eligible for PPP loans, provided they meet all eligibility requirements, after application of the affiliation rules provided in 13 CFR 121.301(f), and can certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
  • The Interim Final Rule clarifies that the affiliation rules are waived if the borrower received financial assistance from an SBA-licensed Small Business Investment Company (“SBIC”), even if the borrower’s affiliation with other entities would otherwise disqualify it from receiving a PPP loan.
• If a hospital receives less than 50% of its funding from state or local government sources, exclusive of Medicaid, it may be eligible for a PPP loan if it otherwise meets the eligibility requirements.
• A business with legal gaming revenue (i.e. casinos) will now be eligible to receive PPP loans if it otherwise meets the eligibility requirements, thereby, with regard to the PPP, taking it out of the previous ineligibility standards set forth in 13 CFR 120.110(g).
• A borrower being owned by an employee stock ownership plan (“ESOP”), regardless of the number of employees that are participants of the ESOP, will not make the borrower ineligible for a PPP loan, provided that all other eligibility requirements would still apply.
• If an entity is in bankruptcy, the entity is ineligible for a PPP loan. Further, if an applicant enters into bankruptcy after submitting an application, the applicant must notify the lender and cancel the application.
• Any borrower that applied for and received a PPP loan, but misunderstood or misapplied the required certification standard (i.e. that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”), will be deemed by SBA to have made the required certification in good faith if the proceeds are repaid in full by May 7, 2020.