Can Bankrupt Companies Apply for a PPP Loan?

While there is absolutely no language in the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) disqualifying a business from applying for a loan under the Paycheck Protection Program (PPP) due to a bankruptcy filing, for reasons unknown, the Small Business Administration unilaterally issued an Application with Question 1 asking whether the applicant is “presently involved in any bankruptcy.” If the answer is “yes”, the form goes on to say that “the loan will not be approved.”

Faced with this issue of first impression, Bankruptcy Judge David R. Jones in Houston, Texas observed that the PPP is not a loan program, rather, it’s a support program with no need to pay the loan back so long as the proceeds are used for the right purposes of payroll, mortgage, rent or utilities. Accordingly, Judge Jones issued a Temporary Restraining Order directing the Debtor to submit the application while striking Question 1 and Ordered the SBA and the bank administering the program to review the application without any consideration of the involvement of the debtor in bankruptcy. The hearing on the Preliminary Injunction is scheduled for May 8, 2020.

Hidalgo County Emergency Service Foundation v. Carranza, 20-02006 (Bankr. S.D. Tex. April 25, 2020.