We are writing to update you on an important technical update with respect to the SBA Paycheck Protection Program (the “PPP”)
SBA PPP Certifications: As hoped, the SBA this morning released some very helpful guidance, updating the FAQs to include new question 46. This new guidance removes the uncertainty around loans under $2m, providing a safe harbor to the certification of the loan’s necessity. However, for loans in excess of $2m, qualification remains an important question. Further comfort has also been provided in the resolution of loans that are deemed to have not met this standard. The SBA and Treasury have indicated that forgiveness will not be available, and the loan will have to be repaid and other administrative enforcement will not be pursued.
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.
BE-10 Reports: As an update to our message yesterday, the due date for this report is May 29th, but an extension of time to file is available until June 30th.
Thank you again for your patience and support. Please reach out to your L&B advisor or to me directly if you have any questions.
LB Advisors Location: 4225 Executive Square, Suite 1150, La Jolla, CA 92037 Phone: (858) 558-9200 Fax: (858) 558-8225