When submitting a Paycheck Protection Program (PPP) loan application, all borrowers were required to certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
In prior PPP Frequently Asked Questions (FAQs), the Small Business Administration (SBA) provided vague guidance that borrowers must make this necessity certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.
Today the SBA issued new FAQ 46 ( https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf ) which provides a “safe harbor” for borrowers with PPP loans of less than $2 million. Under the safe harbor, these borrowers will be deemed to have made the required necessity certification in good faith. The SBA reasoned that the $2 million threshold was 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.” The SBA added that this safe harbor is being implemented to help “promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees” and focus the SBA’s limited audit resources on larger loans “where the compliance effort may yield higher returns.”
In addition, in prior FAQ 39, the SBA had indicated that it will review all PPP loans in excess of $2 million for compliance with the PPP requirements. FAQ 46 also provides that if the SBA determines during its review of a PPP loan that the borrower lacked an adequate basis for the required necessity certification, but the borrower then repays the PPP loan, the SBA will not pursue administrative enforcement or referrals to other agencies with respect to the required necessity certification, and that its determination will not affect the SBA’s PPP loan guarantee.
If you would like additional guidance regarding the information contained in this article, please contact the following BMK partners via our main office telephone, (973) 376-0909 per the office extensions below or the mobile telephone numbers and email addresses provided:
Stuart M. Brown
Office Extension: 1118
Mobile: (908) 770-0166
Frederic M. Tudor
Office Extension: 1121
Mobile: (973) 476-8139
This article is for informational purposes only and is not intended to constitute, and does not constitute, legal advice.