May 14, 2020
On May 13, 2020, the Small Business Administration (SBA) updated its Paycheck Protection Program (PPP) FAQ guidance to explain how it will review the necessity of a business’s PPP funds. This guidance comes as a welcome relief to many eligible small businesses, as previous SBA guidance seemed to emphasize that borrowers needed to prove the loan is “necessary to support the ongoing operations” of the borrower or face financial consequences.
The guidance states that any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will have met the required certification concerning the necessity of the loan request in good faith. The SBA gave this automatic safe harbor to borrowers who received less than $2 million because it determined that borrowers with loans below this threshold are generally less likely to have access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.
Borrowers that received PPP loans for more than $2 million will be subject to review by the SBA for compliance with program requirements as 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 of the loan request, 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. In addition, the guidance states that the SBA’s determination concerning the necessity of certification for the loan will not affect the SBA’s loan guarantee.
The release of this updated guidance is very timely as the SBA is giving borrowers until May 18, 2020 to return PPP funding if they no longer believe they are eligible for the program. On the other hand, borrowers who received under $2 million no longer have to debate what to do.
Walter | Haverfield is closely monitoring the guidance concerning this program and is prepared to assist businesses navigate these important, yet complex issues. If you have additional questions, please reach out to us here.