Document Type
Research Memorandum
Publication Date
2021
Abstract
(Excerpt)
In March of 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide assistance to individuals and businesses affected by the Covid-19 pandemic. The Paycheck Protection Program (the “PPP”) was established under section 7(a)(36) of the Small Business Act to provide economic relief in the form of loans to small businesses negatively impacted by Covid-19. The CARES Act tasks the Small Business Administration (the “SBA”) with administering the PPP loans.
The PPP application form provides that a loan will not be approved if an applicant is “presently involved in any bankruptcy.” However, debtors sued the SBA over this bankruptcy exclusion, resulting in conflicting decisions by the courts. The Consolidated Appropriations Act, enacted December 27, 2020, permitted some debtors to be eligible for PPP loans so long as the SBA provides written approval. On April 6, 2021, the SBA clarified that debtor-applicants may be eligible for PPP loans under certain circumstances.
This article examines whether a debtor may receive a PPP loan under the CARES Act. Part I focuses on the legal arguments on both sides of the issue and how the resulting decisions varied among courts. Part II examines the SBA’s early position on the eligibility of debtors to receive PPP loans. Part III describes the Consolidated Appropriations Act of 2021, through which the SBA further maintained its earlier position. Part IV describes the SBA’s shift in its position weeks before the deadline to apply for the PPP.