May 13 PPP UPDATE: NEW FAQ RELEASED ON REVIEW OF PPP CERTIFICATION

The Small Business Administration (SBA) just released updated guidance regarding the PPP loan certification through a new FAQ #46.  Here is a quick summary:

• The SBA has determined as a safe harbor that any borrower, including affiliates, that received PPP loans of less than $2 million will be deemed to have made the required certification in good faith.
• The SBA has stated previously that all loans in excess of $2 million, and other loans as they deem appropriate, will be subject to review for compliance within the program requirements for certification.
• Borrowers with loans greater than $2 million 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.
• If the SBA determines that a borrower lacked an adequate basis for the required certification, the SBA will seek repayment of the PPP loan balance and the loan will not be eligible for forgiveness.
• If the borrower repays the loan after receiving notification from the SBA, the SBA will not pursue administrative enforcement or referrals to other agencies with respect to the certification regarding the necessity of the loan request.

Here is the SBA’s FAQ #46 in its entirety:

Q:  How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

A:  When submitting a PPP application, 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.”  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 see 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 notifications 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.

Tune into our webinar tomorrow, Thursday, May 14^th at 10AM for additional information on this topic.  View the invite and register here.

Sax will continue to update you as further details are made available.  Reach out to your Sax advisor or email [email protected] with questions.  For more and on-going information relative to your state and business, visit Sax’s COVID-19 Resource Center.