With a drip, drip, drip of guidance from the federal government, there has been significant confusion regarding the PPP Loan program and the requirement that borrowers make a good-faith certification that their loan request was “necessary.”
The PPP Loan program requires all borrowers to certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” New guidance in the form of FAQ #46 makes clear that “[a]ny 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.” (emphasis added)
While prior guidance from the SBA called into question whether the fact that an applicant received a PPP Loan means that the application necessarily qualified for that loan (see FURTHER GUIDANCE ON PAYCHECK PROTECTION PROGRAM), this new guidance sets forth the SBA’s determination that a $2 million safe harbor provision 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.”
The new $2 million safe harbor threshold is consistent with previous SBA guidance that all PPP Loans over $2 million will be subject to audit. This should allow PPP Loan recipients of less than $2 million to breathe a sigh of relief.
While recipients of PPP Loans over $2 million may receive more scrutiny, it is not all bad news.
For PPP Loan recipients with loans over $2 million, the SBA states clearly that such borrowers may still have an adequate basis for making the necessary good-faith certification that the loan request was necessary. And, according to this new guidance, even if the SBA ultimately determines that a borrower lacked an adequate basis to make the required certification that the loan request was necessary, if the borrower repays the loan, the SBA will not pursue additional enforcement or referrals to other agencies.
Guidance on the PPP Loan certification, eligibility and forgiveness continues to be issued by the SBA and the Treasury Department, and we expect that these issues will continue to evolve. If you have any questions regarding the PPP Loan program, or other issues related to the COVID-19 pandemic, or any other legal matter, please contact your FOS attorney.