If you received a Paycheck Protection Program (PPP) loan with an original amount of less than $2 million, the Small Business Administration (SBA) will presume that the borrower’s certification regarding the necessity of the loan was made in good faith.
Released in a May 13, 2020 update to the SBA’s FAQ for Lenders and Borrowers, this should be deemed good news for borrowers.
For loans that are more than $2 million, borrowers may still have an adequate basis to make the required certification. If the SBA determines the certification was unjustified, it won’t pursue administrative enforcement or referrals to other agencies as long as the loan is repaid.
Following is a summary of FAQ No. 46, which asked how the SBA will review borrowers’ required good-faith certification and the necessity of their loan request.
When submitting a PPP application, borrowers must certify in good faith that a PPP loan is necessary to support their ongoing operations because of current economic uncertainty.
After consulting with the Department of Treasury, the SBA determined two things.
A safe harbor will apply to SBA’s review of PPP loans for borrowers who, along with their affiliates, received PPP loans with an original principal amount of less than $2 million. The SBA will presume the borrower’s required certification concerning the necessity of the loan was made in good faith.
Part of the SBA’s reasoning is because borrowers in this threshold category are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers with larger loan amounts.
According to the FAQs, the SBA further determined that safe harbor is appropriate because:
Borrowers with $2 million-plus loans that don’t 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.
Previously, the SBA stated that PPP loans over $2 million will be subject to a compliance review of program requirements, which are outlined in the PPP Interim Final Rules and in the Borrower Application Form.
As a result of an SBA review, if adequate basis for the required certification concerning the necessity of the loan request isn’t found, the SBA:
If the borrower repays the loan after receiving notification from SBA, the SBA:
For any questions related to your loan, please contact your Moss Adams professional.