The SBA and Treasury issued some good news today for borrowers participating in the Paycheck Protection Program (PPP) concerned about the required certification that “the uncertainty of current economic conditions make necessary the loan request to support the ongoing operations of the eligible applicant.” Although Treasury gave borrowers until May 18, 2020 to return funds if they believe that the certification was not made in “good faith”, there was no clarification as to how certification would be verified.
In PPP [1] FAQ #46 [1], out today, SBA has determined that a safe harbor will apply to its review of PPP loans with respect to the certification stating that: “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”. Among other reasons, SBA states that this safe harbor will promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees.
For companies with loans over $2 million, FAQ #46 [1] further states that they “may still have adequate basis for making the required good-faith certification”. They go on to state that they will review these applications to determine if they believe the good faith certification was met. In the case that they determine the loan is not eligible for loan forgiveness, they will inform the lender. If the borrower pays back the loan the “SBA will not pursue administrative enforcement or referrals to other agencies”. Additionally, for the lenders the determination “will not affect SBA’s loan guarantee.”
While there are still uncertainties surrounding PPP loans, this guidance at least provides smaller businesses some level of comfort regarding their PPP loans and enables them to go on to use for the funds for program’s intended purpose.