As part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), investment advisors who qualify as small businesses may have secured loans for emergency financial relief under the Paycheck Protection Program. The PPP was primarily created to provide funds for job retention for small businesses that have been impacted by COVID-19.
The most important aspect of this program is that it permits loans to be fully or partially forgiven for a borrower that satisfies specific conditions. As of June 30, the U.S. Treasury Department reported that 4.9 million loans were to “small businesses of all types and across all industries” under the PPP, with an average loan size of $100,000.
Initially, there was much confusion as to whether investment advisors were even eligible for PPP loans, due to the fact that certain investment and lending businesses are generally ineligible for loans administered by the Small Business Administration.
Further speculation as to advisors’ eligibility for PPP loans arose based on the certification requirement for PPP loans. When applying, borrowers were required to certify in good faith that, among other things, the loan request was necessary due to uncertain times and the proceeds of the loan would be used for allowable expenses.
Even after some advisors had applied and received funds under the PPP, the Treasury Department announced a safe harbor with respect to certification that applies to a borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million.
In the SBA’s view, such borrowers automatically will be deemed to have made the required certification concerning the necessity of the loan request in good faith. However, the SBA may still review PPP loans in excess of $2 million and other PPP loans, as appropriate.
Upon review, if the SBA determines that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, the Treasury Department has stated that the SBA will seek repayment of the outstanding loan balance. However, the SBA will not pursue administrative enforcement or make referrals to other agencies as long as the borrower repays the outstanding loan balance.
But the Securities and Exchange Commission and other regulators are not necessarily precluded from making enforcement referrals based on their own determinations with respect to the certifications made by advisors that applied for or received PPP loans.