On Wednesday, May 13, the U.S. Small Business Association (SBA) issued additional guidance regarding the need to certify “current economic uncertainty” and the need for financing when applying for PPP money. In short, the new guidance gives a safe harbor for all loans under $2 million, and is rather candid in the reasoning—it takes away uncertainty in rehiring employees, and preserves the SBA’s audit resources for review of larger borrowers.
The language also provides some guidance for PPP borrowers with loans over $2 million. It provides a likely remedy of only repayment of the loan and not further sanction in most cases.
Unfortunately, the SBA has yet to issue guidance on forgiveness questions that many of us are asking. We are hopeful to receive guidance on those issues before the end of the month, as the first eight week periods are about to expire. There is also some talk of Congress extending the eight week periods to allow full use of the funds, but no legislation has been passed to provide this relief.
Here is the language from the SBA FAQS as of May 13, 2020:
“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.
If you have any questions or concerns, please feel free to contact us at (206) 447-7000.