On May 13, the SBA added Question 46 to its Paycheck Protection Program Frequently Asked Questions.
Question 46 asks: “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”
SBA’s answer to Question 46 is as follows: “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 review 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 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 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.”
What This Means to Businesses Getting a PPP Loan
With today’s FAQ #46, if a business obtains a PPP loan that is less than $2 million in principal amount, the safe harbor established by the SBA means that a certification made by a borrower in good faith on a PPP loan application that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” will fall within the safe harbor.
In essence, that means that in the event that SBA reviews a borrower’s PPP loan application at some future time for PPP program compliance, at least with respect to the good-faith certification of necessity, the borrower will be deemed by SBA to have made the required certification concerning the necessity of the loan request in good faith. In other words, SBA will not undertake any further review of this particular certification by the borrower.
Of course, an SBA review may find other issues of non-compliance with PPP requirements by a borrower, but as long as the loan amount is less than $2 million, the certification made by the borrower on the loan application that the loan request was necessary to support the borrower’s ongoing business operations should not be questioned as a result of the safe harbor established by FAQ #46 today.