Published May 13, 2020

PPP Evolution: SBA Issues Safe Harbor Guidance Concerning the Good-Faith Loan “Necessity” Certification

During the Paycheck Protection Program (PPP) application process, all PPP borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” If the Small Business Administration (SBA) were to find such a certification to be knowingly false, severe criminal and civil liabilities could be imposed on the borrower and/or its representatives.

The SBA issued a “safe harbor” rule in which borrowers who self-determined they could be at risk for violating this certification could return their PPP loan proceeds on or before May 18, 2020, and as a result, would be deemed to have made the “necessity” certification in good faith.

On May 13, 2020, the SBA issued a new safe harbor in its Frequently Asked Questions that applies to SBA’s review of PPP loan certifications, which provides for the following:

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.

Borrowers with PPP loans over $2 million that do not qualify for the new safe harbor may still be found to have made the “necessity” certification in good faith, if established by their individual facts and circumstances and SBA guidance. Previously, the SBA determined that all PPP loans in excess of $2 million, and others as deemed appropriate, will be subject to review by the SBA. If the SBA’s review finds that such a borrower lacked an adequate basis for the loan “necessity” certification, then the SBA will:

      1. Seek repayment of the outstanding PPP loan balance, and
      2. Inform the lender that the borrower is not eligible for loan forgiveness.

A de facto safe harbor results for borrowers deemed to have capital availability adequate to repay the SBA and who repay PPP proceeds after receiving notification from the SBA. The SBA will not pursue administrative enforcement or referrals to other agencies, such as the Department of Justice, with respect to the “necessity” certification.

PYA will be helping our clients with the PPP Loan review and Loan Forgiveness application processes for small business PPP Loans. If you need assistance or would like additional COVID-19 guidance, visit our COVID-19 hub, or contact one of our PYA executives below at (800) 270-9629.

*Disclaimer: The information above is only a non-exhaustive summary of select provisions of the CARES Act; the full text of the Act can be read here.

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