While the CARES Act, the First PPP Interim Final Rule and guidance issued by the U.S. Treasury and U.S. Small Business Administration repeatedly state that lenders may rely on representations made by the borrower’s authorized representative, this term is not defined in the enabling legislation, implementing rules and regulations, or formal written guidance. Particularly troubling is the absence of any requirement or certification affirming that the authorized representative completing the PPP loan application possesses actual, legal authority to bind the borrowing entity. Without clear guidance on who may be an authorized representative, there is some concern that applications and loan documents may be signed by an individual that does not have the authority to bind the applicant, such as an accountant or advisor to the applicant.
The CARES Act legislation only requires that certifications, at least those in connection with the loan forgiveness portion of the PPP loan program, be made by a “representative of the eligible recipient authorized to make such certifications[.]” Section 1101(e)(3). The implementing Interim Final Rule, 13, C.F.R Part 120, requires only that “[on] the Paycheck Protection Program application, an authorized representative of the applicant” must make the required certifications. In a footnote, the Interim Final Rule, adds: “[a] representative of the applicant can certify for the business as a whole if the representative is legally authorized to do so.”
The PPP Borrower Application Form itself is of little help as it only requires that it “be completed by the authorized representative of the Applicant and submitted to your SBA Participating Lender.” It contains no representations regarding the legal authority of the authorized representative to contractually bind the borrowing entity. Interestingly, the original loan application form, SBA Form 2483 (OMB Control No.: 3245) required the owner of the applicant, in addition to the authorized representative, to sign the application. The requirement for the owner’s signature on the loan application was eliminated in revised SBA Form 2483 (OMB Control No.: 3245-0407).
Lastly, in the Frequently Asked Questions (FAQs) the only pertinent reference to authorized representative is in Question 11 which posits: “May lenders accept signatures from a single individual who is authorized to sign on behalf of the borrower?” The answer: “Yes. However, the borrower should bear in mind that, as the Borrower Application Form indicates, only an authorized representative of the business seeking a loan may sign on behalf of the business. An individual’s signature as an “Authorized Representative of Applicant” is a representation to the lender and to the U.S. government that the signer is authorized to make the certifications, including with respect to the applicant and each owner of 20% or more of the applicant’s equity, contained in the Borrower Application Form. Lenders may rely on that representation and accept a single individual’s signature on that basis.”
In the absence of a defined term “Authorized Representative” or a direct certification in the Borrower Application Form as to the Authorized Representative’s authority to make certifications on behalf of and bind the applicant, it is lender’s responsibility to obtain the necessary certifications in order ensure valid and enforceable loan documents. Lenders should include representations in its loan documents that the Authorized Representative has the power and authority to sign on behalf of the borrower, and that once executed, the loan documents will be duly binding and enforceable against the borrower.
For questions regarding closing and documenting PPP loans, contact the attorneys at Starfield & Smith at 215-542-7070.