Safe Harbor Clarification: Good News for Borrowers Who Received Smaller Loans

The US Treasury and the Small Business Administration (SBA) have released a new FAQ – Question #46 – that addresses the uncertainty around how the SBA is going to deal with the good faith certification. Since Question 31 was released on April 23, there has been significant uncertainty for borrowers as to how the good-faith certification should be interpreted.

FAQ – Question #46 indicates they have created another safe harbor threshold for borrowers with loans of less than $2 million. If you have Payment Protection Program (PPP) loans in the aggregate (if a company got multiple loans for multiple entities) of less than $2 million, you are deemed to satisfy the good-faith certification around the necessity of the loan.

If you have loans in the aggregate of more than $2 million, if the SBA determines during its review that you did not meet the criteria for necessity (which the SBA still has not provided any guidance on), you would be required to pay the loan back and you are not eligible for forgiveness. You would be required to pay back the loan upon receiving notification from the SBA, and in that case, the SBA will not pursue any additional penalties or referrals to other agencies.

Here is a link to and text of FAQ 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.

See related article: Safe Harbor Deadline Extended from May 7 to May 14

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