New SBA Guidance Regarding Paycheck Protection Program – Q&A #46

On May 13, the Small Business Administration (SBA) issued additional guidance regarding the Paycheck Protection Program (PPP). They added a highly anticipated new question and answer to their lengthy FAQ: “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”

One of the requirements when submitting a PPP loan application is a self-certification by the applicant that the loan is necessary to support their ongoing operations in light of the current economic circumstances. Many borrowers called for further clarification on this point out of fear that they would later be judged as having made a false self-certification and face potentially severe civil or criminal penalties.

The clarification on May 13 describes a safe harbor for borrowers who, when combined with their affiliates, receive PPP loans of $2 million or less. Those who receive PPP loans of $2 million and less will be deemed to meet the required certification concerning the necessity of the loan request in good faith. The SBA clarifies the thinking behind the creation of this safe harbor, explaining that:

1. Borrowers with loans of this size are unlikely to have access to other sources of liquidity during this difficult economic time.
2. The creation of the safe harbor will dispel a lot of uncertainty that these smaller businesses had about accepting PPP loans, thereby helping the program to operate more smoothly.
3. Discounting this set of loans from the review process will allow the SBA to better handle the large workload they have before them and focus their efforts on the subsection of borrowers whose self-certifications may not be genuine.

The SBA clarification also addressed what will happen, if in the course of a review, a borrower who receives more than $2 million lacked an adequate basis for their good-faith certification as required to obtain their PPP loan. If this is the case, the borrower will need to return the full amount of the loan. If they do so, the SBA will not “pursue administrative enforcement or referrals to other agencies.”

It is important to note that this is only a safe harbor for meeting the economic uncertainty certification. Borrowers still must track expenses during the covered period and apply for loan forgiveness with their lender.