While we await further guidance from the Treasury regarding PPP loan forgiveness, hopefully imminent, the SBA updated its FAQs this week by publishing FAQs # 46 and 47.
FAQ # 46 should provide borrowers, together with their affiliates (if any), who received loans in the original principal amount of under $2,000,000 with some much needed guidance regarding the certification made by borrowers in the PPP Application– “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
The relevant text of FAQ # 46 is below. The key aspect for borrowers who, together with their affiliates (if any), received loans under $2,000,000, is that they will be deemed to have made the certification regarding the necessity of the loan in good faith. This should allow many borrowers to breathe a sigh of relief, but, of course, we would recommend that borrowers properly document the use of the loan proceeds as they are still required to comply with the “allowable uses” provisions of the CARES Act, and they will need to document their expenses for forgiveness purposes.
46. Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?
Answer: 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 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.
FAQ # 47 extends the deadline to return PPP funds from May 14 to May 18 for those borrowers who believe they may be considered not eligible to receive them, because they cannot make the good faith certification regarding the necessity of the loan due to having access to capital, for example. Here’s the text of FAQ # 47:
47. Question: An SBA interim final rule posted on May 8, 2020 provided that any borrower who applied for a PPP loan and repays the loan in full by May 14, 2020 will be deemed by SBA to have made the required certification concerning the necessity of the loan request in good faith. Is it possible for a borrower to obtain an extension of the May 14, 2020 repayment date? For purposes of this safe harbor, a borrower must include its affiliates to the extent required under the interim final rule on affiliates, 85 FR 20817 (April 15, 2020).
Answer: Yes, SBA is extending the repayment date for this safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor.
The full text of the FAQs is here: SBA FAQs
Should you have any questions as you navigate the PPP or otherwise, please don’t hesitate to reach out to your Archstone attorney.