Free Money For Small Business?

Frankly, I don’t know any small business that does not face significant uncertainty right now. Some are completely closed because of the COVID-19 pandemic. Others remain open with a reduced staff. In the months ahead, even businesses that manage to break even could lose contracts and deplete emergency funds. However, it seems obvious that the certification wording applies particularly to certain businesses directly impacted by the pandemic shutdown measures: for example, the struggling restaurants and many retail stores around my office; on a personal level, the bowling alley my mother owns, my brother-in-law’s residential real estate agency, and my friend’s vacation travel consulting business.

For many small businesses that are not directly or indirectly forced to close, 

But the immediate question is this. Could the lure of “free money” for small businesses that don’t fully meet the PPP standards backfire and get them in trouble later?

Major Law Firms Point Out Legal Risks

In a business-law alert, the law firm Quarles & Brady explains the following (in this and the followed quotations I have bolded part of the text for emphasis). “The PPP application requires the applicant to make a number of certifications, including: ‘Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.’ The SBA has not provided any definition or color about the nature or extent of the required impact to operations that would make the loan request ‘necessary to support ongoing operations,’ which has both applicants and lenders skittish about making or accepting the certifications.”

In a similar client alert, the law firm Venable points out: “Borrowers must certify on the application that ‘current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’ There is little guidance as to what exactly this means.”

In its commentary on the program, the law firm Ropes & Gray goes so far as to warn about possible legal exposure under the False Claims Act (FCA): “Already, news and opinion articles are addressing (and Members of Congress are saying) that there will be significant oversight over funds distributed through PPP. Private individuals have also made clear that they intend to exercise their rights under the Freedom of Information Act to identify the recipients of PPP loans with a view to identifying those who, in their view, were not the intended beneficiaries of the program. Applicants should be aware of possible negative public relations consequences of participating in the program (even if clearly eligible), and that clients who take aggressive positions with respect to eligibility may run a heightened risk of scrutiny.”

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