May 14, 2020 -
The SBA previously issued guidance as part of its Paycheck Protection Program (“PPP”) FAQs clarifying the requirement that loan applicants provide a good-faith certification that the loan was necessary because they were adversely affected by the coronavirus pandemic. (See the Whitley Penn Tax Alert
Additional Scrutiny for Certain PPP Loan Borrowers
dated April 30, 2020).
On May 13, 2020, the Treasury Department and SBA issued FAQs #46 and #47 that provide additional information regarding the good-faith certification requirement. In the updated guidance, the SBA provides a safe harbor that any borrower (including affiliates) that received a PPP loan with an original principal amount of less than $2 million will be deemed to have satisfied the good-faith certification requirement and will not be subject to any further review.
The SBA determined that borrowers obtaining loans under $2 million would be less likely to have other sources from which to obtain the funding necessary to retain and rehire employees. Given the large number of loans made under the two PPP loan programs, the safe harbor will allow the SBA to dedicate its resources to review larger loans where the possibility of noncompliance is greater.
Borrowers with loans greater than $2 million will still be able to satisfy the good-faith certification requirement based on the specific facts of their economic situation. Upon SBA review of their application, those borrowers will be required to verify and substantiate the facts supporting their previous certification that the economic uncertainty that existed at the time of the application made the loan necessary in order to meet their continuing financial obligations. The SBA also noted in FAQ #47 that borrowers that repay their loans by May 18, 2020 will be deemed to have met the good-faith certification requirement.
If the SBA review determines that a borrower did not have an adequate basis to make the certification included in its loan application, the SBA will inform the borrower that it is not eligible for loan forgiveness and that the loan must be repaid. If the borrower repays the loan following this notification, the SBA will not pursue enforcement action or refer the matter to another governmental agency.
The SBA has indicated that all PPP loans in excess of $2 million will be subject to review. Therefore, borrowers with loans in excess of $2 million should make sure they have documentation in place that supports the certification submitted as part of the original loan application.
Whitley Penn has a task force of professionals available that can help you with this and any other matters related to the small business loan process. Please contact us if you have any questions or require additional assistance.