Good Faith Certifications and PPP Loans: New SBA Guidance
Certifying economic necessity is a key component of the Paycheck Protection Program (PPP) – and on May 13, the Small Business Administration (SBA) took a major step towards assuring certain borrowers that they have made their loan request certification in good faith.
The SBA, along with the Department of the Treasury, has changed its review protocol and announced May 13 in its Frequently Asked Question 46 that any borrower, together with its affiliates, that has received Paycheck Protection Program (“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.
To recap: The CARES Act and the PPP loan application requires that 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.” While the SBA has said all PPP loans in excess of $2 million – “in addition to other loans as appropriate” – would be subject to SBA compliance review, small borrowers were understandably nervous – and many elected to repay their loan before the SBA’s “no questions asked” loan return deadline, which initially was May 7 and then May 18, 2020.
The SBA said borrowers with loans below the $2 million 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 agency also believes the $2 million threshold will also promote economic certainty as PPP borrowers with more limited resources retain and rehire employees. Finally, given the large volume of PPP loans, the SBA will be able to conserve its finite audit resources and focus on larger loans – and potentially greater returns in an audit.
Borrowed more than $2 million? Key points to consider:
- You may still have an adequate basis for making the required good-faith certification, based on your individual circumstances.
- 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.
- Note: If you repay the loan after receiving determination from SBA, SBA will not pursue administrative enforcement or referrals to other agencies.
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