The U.S. Small Business Administration (“SBA”) updated their Frequently Asked Questions earlier today with a new FAQ (#46) regarding how the Administration intends to review a borrower’s “good-faith certification” concerning the necessity of their Paycheck Protection Program (“PPP”) loan request. This is important guidance for borrowers, considering the safe harbor deadline is
tomorrow, Thursday, May 14, 2020 (Monday, May 18, 2020), for borrowers to review the required certification and determine whether they should repay their PPP loan. Borrowers who repay the loan in full by May 14 (18) will be deemed by SBA to have made the required certification in good faith.
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 “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.
Based on this guidance, borrowers with less than $2 million in PPP loans will not need to address their “good-faith certification” by
May 14, 2020 (May 18, 2020) or contemplate whether SBA will review their loan request with respect to this issue. This is essentially a safe harbor within the safe harbor.
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.
Based on this guidance, if a borrower does not repay their PPP loan by the safe harbor deadline on
May 14, 2020 (May 18, 2020) and their loan (for over $2 million) is subsequently reviewed by SBA; the SBA’s actions will be limited to (1) requesting that the borrower repay the outstanding loan balance and (2) informing the lender that the borrower is not eligible for loan forgiveness. There will be no additional civil or criminal penalties or referrals to other government agencies if the borrower repays the loan after being notified by SBA.
SBA updated their Frequently Asked Questions on Wednesday evening with a new FAQ (#47) indicating that they are extending the repayment date for this safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46.
47. Question: An SBA interim final rule posted on May 8, 2020 provided that any borrower who applied for a PPP loan and repays the loan in full by May 14, 2020 will be deemed by SBA to have made the required certification concerning the necessity of the loan request in good faith. Is it possible for a borrower to obtain an extension of the May 14, 2020 repayment date?
Answer: Yes, SBA is extending the repayment date for this safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor.
For additional information on the Paycheck Protection Program, as well as other Federal, state and local relief measures, please visit our COVID-19 Resource Center on our website. If you have any questions, please contact your Tronconi Segarra & Associates advisor or a member of our response team at
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