Yesterday, the Small Business Administration (“SBA”) released awaited guidance on how they intend to review a borrower's required good-faith certification concerning the necessity of their loan request.
When applying for a Paycheck Protection Program (“PPP”) loan, a borrower must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The SBA has established the following “safe harbor” for borrowers with respect to this certification.
Question #46 of the SBA's updated FAQ provides in relevant part:
“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.”
Question #46 further states that borrowers with loans greater than $2 million 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. In the event that the SBA determines that a borrower receiving a loan of $2 million or more lacked an adequate basis for the required certification concerning the necessity of the loan request, the SBA will inform the lender that the borrower is not eligible for loan forgiveness, and if the borrower repays the loan, the SBA has indicated that it will not pursue administrative enforcement or referrals to other agencies.
Further, the interim final rule posted on May 8, 2020 provided that any borrower that applied for a PPP loan and repays the loan in full by May 14, 2020 will be deemed by the SBA to have made the required certification concerning the necessity of the loan request in good faith. By FAQ#47, the SBA has extended that date to May 18, 2020 to give borrowers an opportunity to review and consider FAQ #46. Borrowers do not need to apply for this extension.
Originally published Shipman & Goodwin, May 2020
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