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Paycheck Protection Program Update – New Funding and New Eligibility Guidance

On April 24, 2020, the President signed into law additional funding for the Paycheck Protection Program (“PPP”). According to a joint press release from Secretary Mnuchin and SBA Administrator Carranza, the Small Business Administration (“SBA”) will resume accepting PPP applications on Monday, April 27th at 10:30 AM.

New Eligibility Guidance

In a new interim final rule issued on April 24, 2020, the SBA continues to provide guidance on PPP loan eligibility.

Ineligible Hedge Funds and Private Equity Funds – Hedge funds and private equity funds are flatly disqualified from applying for PPP loans, because they are “primarily engaged in investment or speculation.”

Eligible Government-Owned Hospitals – A government-owned hospital can apply for a PPP loan if the hospital receives less than 50 percent of its funding from state or local government sources.

Eligible Legal Gambling – Reversing its own prior guidance on per se ineligible businesses, the SBA now permits a person engaged in legal gambling to apply for a PPP loan. Any person in an illegal gambling business remains “categorically ineligible.”

Application of Affiliation Rules to Portfolio Companies – The SBA reaffirmed that its general affiliation rules apply to a private equity fund and the portfolio companies in which the private equity fund has made an investment, dashing industry hopes of regulatory relief from the affiliation rules for portfolio investments.

Another Hint about the “Necessary” Certification – In discussing the above application of the affiliate rules to private equity funds, the SBA notes that all borrowers should carefully review the required application certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” In this curious aside, the SBA hints that a portfolio company may have to first seek additional funding from its private equity investor, before applying for a PPP loan.

Bankruptcy – A business in bankruptcy cannot apply for a PPP loan or, if already approved, receive the proceeds of a PPP loan.

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