Updated Guidance on PPP Good-Faith Certification and Need for Funds — New Safe Harbor for Loans Under $2M

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Update: PPP Safe Harbor for Return of Funds Extended to May 18, 2020

May 14, 2020

For those who do not meet the New Safe Harbor For Paycheck Protection Program (PPP) Loans Under $2M and are still trying to determine whether to keep the PPP funds, the SBA has extended the repayment date for the safe harbor to May 18, 2020.


May 13, 2020

In a new FAQ regarding the Paycheck Protection Program (PPP) updated on May 13, 2020, the SBA appears to have backed off the threat to review PPP loans of less than $2 million for improperly certifying their loan was necessary.

As we have communicated before, recent guidance from the US Treasury and comments by Treasury Secretary Steve Mnuchin that the PPP loan application requires, among other things, that applicants certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  They placed a safe harbor date to return the funds if you feel that you did not meet this requirement that was originally set for May 7th and then extended to May 14th.

Now the SBA has effectively reversed course and, on the day before the repayment deadline, held that any loans totaling less than $2 million for a borrower and any affiliates will be deemed to have certified their need for the loan in good faith.

The New Q&A 46 Reads:

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]current 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.

Next Steps?

If you have returned the Paycheck Protection Program loans or are in the process, we would recommend that you contact your banker ASAP to see if there is a way to pull it back before the May 14th return date.

We are also monitoring forthcoming Loan Forgiveness guidance and will keep you updated as news comes of it in the coming days and weeks.

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