CLIENT ALERT
By: Christopher Candon
May 13, 2020
This alert provides an update and additional information related to the recent post:
PPP Safe Harbor for Return of Funds Set to Expire on May 14
As outlined in the prior post, the SBA established a May 14, 2020 safe harbor deadline for borrowers to return PPP funds. The issue arises because of additional guidance provided concerning the meaning of the PPP good-faith certification standard that was clarified after borrowers had filed PPP applications and received funds. The May 14 deadline remains in place.
Earlier today (May 13, 2020), however, the Treasury Department and SBA announced additional guidance to assist borrowers in analyzing whether they need to take advantage of the safe harbor return option. The full FAQ #46 is reproduced below. The key takeaways include:
1. Borrowers (including any affiliates) that received PPP loans with an original aggregate 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.
2. Borrowers with loans greater than $2 million may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance.
3. If the SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.
PAYCHECK PROTECTION PROGRAM LOANS
Frequently Asked Questions (FAQs)
46. Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?
Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, 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.
SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.
Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.