SBA Provides PPP Borrowers with Guidance on Certification of Need

05.13.2020

Today the SBA updated its Paycheck Protection Program Loans Frequently Asked Questions (FAQs) to provide PPP Borrowers with meaningful guidance on self-certification of need. This guidance comes one day prior to the May 14 date set by the SBA for borrowers to pay back PPP loans that may not have satisfied the certification of need standard.

PPP Loans below $2 million. Based on guidance issued by the SBA today, borrowers with Paycheck Protection Program (PPP) loans of less than $2 million can breathe a sigh of relief regarding the self-certification of the economic necessity for a PPP loan. In FAQ #46 released today, the SBA provides: “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.” The effect is to create a safe-harbor and accept without further inquiry the truthfulness of such borrower’s certification in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

The SBA offered three rationales for the safe harbor: (i) a borrower of less than $2 million is less likely to have access to other sources of liquidity; (ii) the safe harbor provides economic certainty to these borrowers as they strive to retain and rehire employees; and (iii) the SBA’s finite audit and review resources are more efficiently spent on examinations of borrowers with larger loans.

To emphasize, the safe harbor  is only for purposes of the certification of need and does not affect other certifications such as the size of the borrower.

PPP Loans of $2 million and above. With respect to a borrower of more than $2 million in PPP loans, the SBA also clarified that if the SBA determines that such borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, the SBA will seek repayment of the loan and if the borrower thereafter repays the loan, the SBA will not pursue administrative enforcement or referrals to other agencies. The SBA also affirmed its earlier guidance that such loans will be subject to review by the SBA for compliance with the PPP (and reserved the right to review other PPP loans “as appropriate”).

This SBA guidance should ease concerns of many recipients who were reconsidering the validity of their self-certification and concerns about possible civil or criminal penalties if the SBA disagreed with their good-faith certification. However, it does leave unanswered the question of how the SBA will actually determine that a borrower did not have a good faith basis for obtaining loan of more than $2 million. Further guidance on this point is hopefully forthcoming, and Hirschler will continue to keep you abreast of these developments.