NEW GUIDANCE ON BORROWER’S GOOD FAITH CERTIFICATION ON NECESSITY OF PPP LOANS
Yesterday, the United States’ Department of Treasury (“Treasury”) issued additional guidance clarifying a borrower’s good faith certification that the economic uncertainty made the borrower’s Paycheck Protection Program (“PPP”) loan request necessary to support ongoing operations. In prior guidance, Treasury announced that the SBA intended to scrutinize a borrower’s need for PPP funds, and cautioned
all
borrowers to take into account their current business activity and ability to access other sources of capital when analyzing their need for PPP funds. Concerned about the scrutiny of the certification, many borrowers, large and small, are considering whether to return their PPP funds by
new “safe harbor” deadline of May 18, 2020
, which was announced in new Treasury guidance released this morning.
LOANS OF LESS THAN $2MM PRESUMED TO HAVE BEEN REQUESTED IN
GOOD FAITH.
The new guidance will relieve the concerns of many PPP loan borrowers, especially those small businesses which are requesting assistance to avoid closing their doors. The guidance provides that borrowers with original principal loan amounts of under $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith
.
Treasury determined that this safe harbor is appropriate because smaller borrowers generally would not have access to alternative sources of liquidity. The rule will also provide certainty for these companies.
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, but their loans will be subjected to SBA review for compliance with the program requirements in the PPP Interim Final Rules and Borrower’s Application Form. If the SBA determines that the borrower’s certification of economic need did not meet the program requirements, the borrower will not be subject to administrative action or referral to other authorities as long as the borrower returns the loan proceeds after it receives notice of the SBA’s determination. This effectively extends the “safe harbor” for larger borrowers beyond May 18, 2020.
For additional information on the PPP loans or the available forgiveness, please feel free to contact any one of our COVID-19 Response Team members listed below. Please also be on the look-out for an announcement from us about our next live webinar addressing the latest PPP guidance. We stand ready to assist you as you navigate the fluctuating regulations and guidance issued by the federal government.
