Treasury Provides New Guidance on PPP Loans to Corporate Groups

Late last week, the Department of Treasury (“Treasury”) released a new interim final rule (the “Interim Final Rule”) relating to the administration of the paycheck protection program (“PPP”) under the CARES Act. The Interim Final Rule limits the amount any corporate group can receive under the PPP to $20,000,000. The full text of the Interim Final Rule can be found here and its material terms are as follows:

• With respect to distributions of PPP loans that will take place after April 30, 2020, no “corporate group” may receive, in the aggregate, more than $20,000,000 in PPP loans. The Interim Final Rule considers businesses to be part of a single corporate group if they are majority owned, directly or indirectly, by a common parent, though it does not define common parent. Any distribution received on or prior to April 30, 2020, is exempt from the terms of the Interim Final Rule.
• Each PPP applicant must notify its lender and withdraw or request cancellation of its PPP loan application if it is now, or upon distribution of a pending PPP loan would be, in violation of this rule.
• Violations of this rule will result in the use of PPP funds by an applicant being deemed unauthorized, which, among other potential consequences, will result in the PPP loan being ineligible for forgiveness and could be deemed a violation of the application certifications.
• This rule applies even to businesses that are eligible for PPP loans under an exemption from the affiliation rules.

Separately, the Interim Final Rule loosened the eligibility requirements for non-bank lenders to be lenders for PPP loans for non-bank lenders that are community development financial institutions (other than a federally insured bank or federally insured credit union) or majority minority-, women-, or veteran/military-owned lenders.

The Interim Final Rule is the seventh rule released by Treasury to provide guidance on the administration and interpretation of the material terms of the PPP. Given the speed at which the program has been implemented and the ongoing release of rules and guidance, there remains substantial uncertainty surrounding the program.