The Small Business Administration (SBA) provided new Paycheck Protection Program (PPP) guidance relative to the certification requirement that, “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” On May 13, they added question 46 to its FAQ document, which includes the following guidance:
- Any borrower that, together with its affiliates, received PPP loans with an original principal amount under $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith (the “safe harbor” provision).
- Borrowers with loans greater than $2 million may still have an adequate basis for making the required good-faith certification.
- Borrowers with PPP loans greater than $2 million will be subject to review by the SBA for compliance with program requirements.
- If the SBA determines that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, the SBA will seek repayment of the outstanding PPP loan balance. These borrowers will not be eligible for loan 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 based on its determination with respect to the certification concerning the necessity of the loan request.
The full FAQ is available at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf.
This guidance comes on the heels of broadly publicized reports of large companies that received PPP funds, then, in some cases, returned them. These businesses were deemed to have adequate liquidity from other sources or to have otherwise violated the requirement that the loan was “necessary to support the ongoing operations” of the organization. The ethics and integrity of these businesses were also questioned in the news reports as well as by small businesses that applied but did not receive loans before the funds ran out.
We continue to recommend the following:
- Borrowers should continue to review interim rules, FAQs, and other SBA guidance as they are released. Updates from the SBA can be viewed at www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program or https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses.
- Management and the board of directors of an organization that has applied for or received PPP funds should review their financial situation and consider their eligibility in light of the certification requirements.
- Any organization that has received funds and determines that it does not demonstrate necessity in accordance with the guidance should repay the loan in full by May 14, 2020.
- An organization that has received funding and is eligible according to the guidance must keep comprehensive and accurate documentation on its eligibility, how it is using the funds, and how it is complying with the forgiveness terms of the program.
If you have questions about PPP loans or other economic relief programs, please contact your HBK advisor.
After this article was published, the SBA FAQ (#47) updated the Safe Harbor Date to May 18, 2020.