On April 23, 2020, the Small Business Administration (“SBA”) posted FAQ #31 concerning the Paycheck Protection Program (“PPP”), stating in relevant part that borrowers should review their application to assess their economic need for a PPP loan. Specifically, borrowers should determine if in good faith they can make the certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
The SBA stated that borrowers must make this certification in good faith, taking into account their current business activity, as well as 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.
Additionally, the SBA provided that borrowers that applied for a PPP loan and repaid the loan in full by May 7, 2020 will be deemed by the SBA to have made the required certification in good faith.
On May 6, 2020, the SBA extended the deadline to return the loans to May 14th, and promised to issue guidance concerning the borrower certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
Below is a summary of the SBA’s guidance on the foregoing certification issued May 13, 2020:
- 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. The 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.
- 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. The SBA has previously stated in FAQ #39 that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by the SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If the 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 (including whether the borrower had access to adequate sources of liquidity), the 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 the SBA, the 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. The SBA’s determination concerning the certification regarding the necessity of the loan request will not affect the SBA’s loan guarantee.
