On May 13, the Small Business Administration (SBA) updated its Paycheck Protection Program Frequently Asked Questions page to clarify how they will determine if a borrower applied in good faith out of monetary necessity. It states: “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 SBA determined that borrowers with loans below the $2 million dollar threshold are less likely to have adequate sources of liquidity than borrowers that received larger loans, making this an appropriate safe harbor. Considering the large number of PPP loans issued, this threshold also allows the SBA to conserve audit resources and focus on reviewing larger loans, in which the compliance effort could yield higher returns.
Borrowers will now have until May 18th to repay their PPP loan so they can review and consider this updated guidance.
PPP loans over $2 million
It’s important to note that borrowers who received PPP loans greater than $2 million might still have a sufficient basis for making the good-faith certification due to their individual circumstance. The FAQ goes on to state:
“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.”
Please refer to the full FAQ here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf