SBA Clarifies Paycheck Protection Program for Hedge Funds and Private Equity Firms– April 28, 2020 by Cynthia Pedersen

Recently, certain large businesses that applied for and received proceeds under the Paycheck Protection Program (PPP) came under public scrutiny. As the program is being expanded through additional funding from the Interim Stimulus Plan, the SBA has released updated guidance aimed at eliminating ambiguity around eligible businesses.

Updated Guidance Addresses Hedge and Private Equity Firms

The SBA’s new guidance comes in the form of an Interim Final Rule and FAQs and affects the private investment industry.

The FAQs on the PPP loan program include a question that may be relevant to investment managers regarding liquidity to support the business’ ongoing operations. Previous guidance was broad and required borrowers to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The FAQ goes further and states that “borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

The Interim Final Rule, issued on April 24, 2020, states that “hedge funds and private equity firms are primarily engaged in investment or speculation, and such businesses are therefore ineligible to receive a PPP loan.” There was no clarification as to the definition of hedge fund or private equity firms, nor any clarification as to the scope of this statement and related applicability to various investment managers. The SBA Administrator does not believe that Congress intended for these businesses, which are generally ineligible for section 7(a) loans under existing SBA regulations, to obtain PPP financing.

In addition, the Interim Final Rule describes that all businesses, including private equity owned businesses, must apply the same affiliation rules as any other company subject to outside ownership or control. Therefore, these businesses should review the required certification as a part of the loan application that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” In addition, private equity owned businesses should consider the ability to access other sources of liquidity as described above and in the FAQs.

The Interim Final Rule states that it has no preemptive or retroactive effect. However, the certification regarding the applicant’s necessity due to economic uncertainty was required at the time of the original loan application. The Interim Final Rule and the FAQs describe situations where if it is determined that an entity that received a PPP loan is no longer eligible due to the expanded definition of “necessity,” the SBA will consider the original certification in good faith if the loan is repaid by May 7, 2020.

We continue to advise that clients consider the availability of these programs and consult with their legal advisors and/or lending institutions as to availability of the program based upon a company’s specific situation. Accordingly, for any businesses that applied for and received, or are intending to apply for, a PPP loan under the expanded funding, it will be important to review business activities with legal advisors. We will continue to monitor the guidance released by the SBA and provide updates.

Contact Cynthia Pedersen at or a member of your service team to discuss this topic further.

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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.