On May 13, 2020, the U.S. Small Business Administration (“SBA”), in consultation with the Department of the Treasury, issued additional guidance for borrowers and lenders, in the form of Frequently Asked Questions (“FAQs”), concerning the implementation of the Paycheck Protection Program (“PPP”), established by section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act” or the “Act”). In particular, FAQ #46, which may impact your organization, references the certification of necessity which was previously addressed on April 23, 2020 with the issuance of FAQ #31 further illustrating the SBA’s review of the required good-faith certification and creates a new safe-harbor provision related to the PPP loan’s good faith certification, inclusive of affiliates, for borrowers receiving less than $2 million. The guidance also indicates the administrative actions that the SBA will take with regard to their review of any support for certification for loans greater than $2 million, which includes disallowance of forgiveness if the SBA, pursuant to its review, determines that the certification was not made in good faith.
For your reference, the full text of FAQ #46 is set forth below:
"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,20 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."
If you have any questions regarding the impact of FAQ #31 and FAQ #46 on your PPP application or loan, please contact your attorney for legal advice to determine how this recently issued SBA guidance could impact your organization.
This communication is intended as a notification of further guidance issued by the SBA and should not be construed as an indication that an applied for, pending or approved PPP loan does or does not qualify pursuant to the requirements of FAQ #31 and FAQ #46.
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