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CARES Act – Client Alert re Treasury Rule 4.24.20


CLIENT UPDATE: On April 24, 2020, Treasury issued a supplemental interim final rule regarding the CARES Act’s Paycheck Protection Program.

The rule clarifies various PPP requirements for certain businesses and organizations, including requirements pertaining to promissory notes, authorizations, affiliation, and eligibility.  Notably, the rule provides a safe harbor to return PPP loan funds that a borrower should not have received.

The PPP loan application requires applicants to certify in good faith that “current economic uncertainty makes [the] loan request necessary to support the ongoing operations of the Applicant.” Despite this requirement, some large, wealthy organizations received PPP loans, perhaps as a result of misunderstanding or misapplication of the required certification. Accordingly, and to facilitate the prompt repayment of such PPP loan funds, the interim rule now provides that “[a]ny borrower that applied for a PPP loan prior to the issuance of this regulation and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.”

In addition to this safe harbor provision, other highlights of the rule include:

  • Guidance regarding a lender’s use of its own promissory note and own authorization documents (rather than SBA forms)
  • Providing that hedge funds and private equity firms are not eligible to participate in the PPP; however, private-equity owned businesses may be eligible, but affiliation rules apply
  • Government-owned hospitals may participate in the PPP if the hospital receives less than 50% of its funding from state or local government sources, exclusive of Medicaid
  • Business that receive revenue from legal gaming are eligible for a PPP loan; however, businesses that receive illegal gaming revenue are categorically ineligible
  • A business’s participation in an employee stock ownership plan does not trigger application of the affiliation rules
  • A business presently involved in a bankruptcy proceeding as a debtor will not be eligible for a PPP loan

The entire rule is available at:

Wadleigh’s COVID-19 Response Team will continue to monitor this situation closely and provide updates as the situation develops.