What Do I Do After I Receive a Loan under the CARES Act? The Fine Print and the Importance of Strict Compliance


If you applied for a loan made available under the CARES Act, like millions of Americans and American businesses, you should now turn your attention to compliance with the loans’ various restrictions.  As you may recall, each loan application required the applicant to make several representations and warranties, and certify the accuracy of the financial information disclosed.  Here are practical insights to help you manage compliance with the loans’ many terms and conditions.

Compliance with these terms and conditions is hugely important for applicants to monitor.  These loans were made available through emergency legislation which, in order to allow the ~$900 billion in earmarked funding to serve its purpose and get into the hands of borrowers as quickly as possible, essentially charged the borrowers with the responsibilities ordinarily required of the lenders.  On the one hand, this streamlined the application process.  On the other hand, however, lenders are only required to perform “good faith reviews” of the applications submitted by borrowers, meaning that certification requirements could lead to sticky situations for borrowers who don’t follow the rules.  In fact, false or misleading certifications could potentially give rise to civil liability under the False Claims Act or the Financial Institutions Reform Regulation Enforcement Act, or even criminal penalties.

There are several types of loans between the SBA and the Treasury Department, but they are largely lumped into two groups – one which targets small businesses (500 or fewer employees), which includes the Paycheck Protection Program (PPP), and one designed to help medium-sized companies (between 500 and 10,000 employees), which includes loans funded under the Coronavirus Economic Stabilization Act of 2020 (CESA).

If you applied for a PPP loan, you made the following certifications:

  • Current economic uncertainty makes the loan necessary to support your ongoing operations;
  • The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments;
  • You have not and will not receive another loan under this program;
  • You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting the loan;
  • Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities;
  • All the information you provided in your application and in all supporting documents and forms is true and accurate;
  • Knowingly making a false statement to get a loan under this program is punishable by law;
  • You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted;
  • You affirm that the tax documents are identical to those you submitted to the IRS; and
  • You understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

Loans made available to medium-sized businesses under CESA required applicants to certify, in good faith, the following:

  • Retention of 90% of workforce at full compensation and benefits through September 30, 2020;
  • Restoration of workforce to 90% of February 1, 2020 workforce within 4 months of the end of the current COVID-19 emergency;
  • No outsourcing or offshoring of jobs for 2 years after repayment of loan;
  • No payment of dividends and no stock buybacks during term of the loan; and
  • The borrower is U.S. domiciled.

To the extent the Treasury provides assistance to a program or Federal Reserve Facility that makes direct loans to eligible businesses, borrowers must agree that during the term of the loan and for a period of 12 months thereafter, there will be:

  • No dividends or other capital distributions paid on common stock;
  • No stock buybacks; and
  • Caps on raises for highly compensated employees and officers’ compensation packages.

These specific, additional restrictions apply to the loans available to medium-sized companies, but do not apply to small businesses receiving PPP loans.

Once you’ve received your funds, be sure to look into the strings attached and compliance requirements to which you likely already agreed.  If you have questions on whether you received a loan which requires you to take precautionary next steps, contact Graydon’s Coronavirus Task Force.

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