SBA Provides Small PPP Loan Borrowers Additional Comfort on Eve of Safe Harbor Deadline

On May 13, 2020, the Department of the Treasury (“Treasury”) posted a new update to the Frequently Asked Questions (“FAQs”) it has been periodically updating since passage of the CARES Act.  The new FAQ #46 gives borrowers who, together with their affiliates, have received PPP loans in amounts less than $2 million comfort that the Small Business Administration will not challenge the borrower’s certification that the PPP loan was “necessary” due to economic uncertainty.

Prior FAQs raised some uncertainty as to how the SBA would determine if a borrower had made the required certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations” of the borrower in good faith. The new FAQ #46 states, “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.” Borrowers with loans greater than $2 million may still have an adequate basis for making the required good-faith certification based on individual facts and circumstances. 

Upon review, if the SBA determines a borrower lacked an adequate basis for the required certification, the borrower will be required to repay the loan, but SBA will not seek administrative enforcement or refer the borrower to other federal agencies for civil or criminal penalties if the loan is repaid.

Questions still exist as to how the SBA will evaluate the specific facts and circumstances for borrowers with loans in excess of $2 million, but the new FAQ provides some certainty to the vast majority of PPP borrowers.

UPDATE: Borrowers who do not feel they can meet the good-faith certification requirement and want to repay the loan were previously given a safe harbor for repayment. Newly added FAQ #47 states the SBA will be posting a new interim final rule which moves the deadline for repayment under the safe harbor from May 14, 2020 to May 18, 2020. While the SBA has indicated it will not penalize borrowers who cannot meet the good-faith certification standard if the loan is repaid upon review, there are benefits for borrowers who meet the safe harbor. A borrower who repays the loan under the safe harbor will be treated as if it had not obtained a Payroll Protection Program loan, and may be eligible for other COVID-19 relief such as the Employee Retention Credit.

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