Today, the US Small Business Administration (SBA) provided further guidance for PPP loan applicants in FAQ #37, which states:

  1. Question: Do businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: See response to FAQ #31[1].

Beyond potentially excluding private companies (in addition to public companies under the SBA’s prior FAQ #31) with “adequate sources of liquidity,” the SBA offers no meaningful guidance regarding such “adequacy” or “sources” or even regarding what might constitute such “liquidity.”

Must such “sources” be committed by creditworthy counterparties? What conditions precedent should be satisfied for such sources to be available? What amount of sources is “adequate”? Does “liquidity” require (if even applicable) the sale of assets? If so, just “surplus” assets or others? At what price, and on what other terms, should such assets be sold to provide such liquidity? These and undoubtedly other questions are being raised by potential applicants and the uncertainty is causing them pause and impairing the effectiveness of the SBA’s PPP.

[1] Discussed in our April 23, 2020 COVID-19 blog posting “Clear as Mud: SBA Offers Further Clarification to PPP Eligibility

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