The Department of the Treasury released on May 13, 2020 FAQs No. 46 and No. 47 related to the requirement that Paycheck Protection Program (PPP) borrowers certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
Below are highlights and key points related to this new guidance:
- Safe harbor for PPP loans under $2 million. Any borrower that (together with its affiliates) received PPP loans with a total principal amount of less than $2 million is deemed to have made the required certification in good faith. The guidance states that borrowers below this threshold are less likely to have access to other sources of liquidity. This threshold allows the Small Business Administration (SBA) to focus its limited resources on larger loans and should provide comfort to recipients of smaller loans so long as they continue to satisfy the other PPP requirements.
- Penalty for inadequate certification. Borrowers with PPP loans in excess of $2 million will be subject to review by SBA with respect to the basis of a borrower’s required certification. Borrowers who are found by the SBA to have an inadequate basis for their certification will be required to repay their loans and will be ineligible for loan forgiveness. So long as the loan is repaid after the SBA makes its determination, the SBA will not seek other administrative enforcement or referrals to other agencies (though, of course, other agencies could pursue action on their own without SBA referral). It is not clear whether the required repayment must be immediate in full or over the remaining term of the PPP loan.
- Open certification questions remain. The latest FAQ provides little new guidance for borrowers on what factors to consider in making the certification, what documentation will be required by the SBA for its review and how the SBA will interpret the good faith requirement. Borrowers will still need to assess the general dynamics of their business at the time of the loan application in light of the prior SBA interim rules and guidance. Although the new FAQ states that PPP principal amounts over $2 million will be subject to review, it appears that the trigger for such review will be the borrower’s forgiveness request given that the ultimate penalty is repayment. Further, no information has been provided regarding a borrower’s ability to dispute the SBA’s determination.
- Guidance applies to certification only. The latest FAQ relates only to the required certification and does not apply to other elements of PPP eligibility, including the application of affiliation rules and satisfaction of the size test. The SBA still has the right to audit all PPP loans (including those under $2 million) for compliance with such requirements.
- Repayment deadline extended to May 18, 2020. This guidance came just one day before the May 14, 2020 repayment deadline for borrowers who determined that they cannot make the required certification in good faith. Now, such borrowers will be deemed to have certified in good faith if they repay their PPP loan in full by May 18, 2020. This extended deadline gives borrowers additional time to consider the latest PPP guidance.
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