Buchalter COVID-19 Client Alert: PPP Loans Now Available to Otherwise-Eligible Companies That Have Ended Their Bankruptcy Proceedings

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The Small Business Administration (“SBA”) has made an adjustment to its guidance to provide that entities which have concluded a bankruptcy proceeding are not, for purposes of PPP eligibility, considered in bankruptcy. Entities which are presently in bankruptcy are not eligible for a PPP loan.

The SBA’s latest Frequently Asked Questions (found at https://www.sba.gov/sites/default/files/2021-04/PPP%20FAQs%204.6.21%20FINAL-508.pdf) contain a new FAQ Number 67. It provides that for PPP eligibility purposes, a party is deemed to have left a bankruptcy proceeding under the following circumstances:

Chapter 7 – the Bankruptcy Court has entered a discharge order.

Chapters 11, 12 and 13 – the Bankruptcy Court has entered an order confirming the plan.

Any Chapter – the Bankruptcy Court has entered an order dismissing the case.

For an entity to be eligible for a PPP loan, the above orders must be entered before the date of the PPP loan application.

If an entity is permanently closed as a result of a bankruptcy filing, it is not eligible for a PPP loan.

Thus, an entity that has recently resolved its bankruptcy case, and is otherwise eligible for a PPP loan, must submit its application before the May 31 deadline.  If an entity is otherwise eligible for a PPP loan and is in a bankruptcy proceeding that can be quickly resolved, it may wish to attempt to do so before the May 31 PPP loan application filing deadline.

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