Small Business Administration Establishes Safe Harbor for PPP Loans Under $2 million
The Small Business Administration (“SBA”), in consultation with the Department of Treasury, updated its Frequently Asked Questions (“FAQ”) as of today, May 13, 2020 to provide further guidance on Paycheck Protection Program (PPP) loans.
Safe Harbor for loans for less than $2 million issued under the PPP.
All borrowers for PPP loans have certified that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Any borrower that, together with its affiliates (to the extent required under Interim Final Rule on affiliates in 85 FR 20817 published on April 15, 2020), received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.
Borrowers of PPP Loans of more than $2 million in which the SBA determines lack an adequate basis to make the required certifications may be returned, without further penalty.
The SBA previously stated that all PPP loans in excess of $2 million and other PPP loans that it deems appropriate will be subject to review by the SBA to ensure compliance with the program requirements. If the SBA determines a borrower lacked an adequate basis for the required certifications concerning the necessity of the loan request, the SBA will seek repayment of the outstanding PPP loan balance and this loan will not be eligible for forgiveness. If the borrower repays the loan after receiving the notification from the SBA, the SBA will not pursue administrative enforcement or referrals to other agencies based on its determination.
This is good news for borrowers of PPP loans. The PPP loan application requires, among other things, that applicants certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The SBA previously provided that any borrower that applied for a PPP loan prior to the issuance of Question 31 of the FAQ on April 23, 2020 will be deemed to have made the certification in good faith if the loan is repaid by May 7 (which was later changed to May 14 under Question 43 of the FAQ). When making the good faith certification, borrowers must take into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. Many borrowers felt that there was inadequate guidance from the SBA, the Department of Treasury and their banks to allow them to make an informed decision whether to return the PPP loan proceeds by the May 14, 2020 deadline. The additional guidance issued today provides much needed certainty and clarity for these borrowers.
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