Gravel & Shea PC

SBA Announces That Borrowers of PPP Loans of Less than $2M Will Benefit from Presumption of Good Faith When Certifying Need and Borrowers of Larger Loans Will Have an Opportunity to Correct Before Facing Enforcement

When applying for PPP loans, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes [the] loan request necessary to support the ongoing operations of the Applicant.”  In recent weeks, additions to the U.S. Treasury FAQs cast doubt that small businesses owned by larger concerns and businesses owned by private equity firms or hedge funds could make the certification of need in good faith, notwithstanding their eligibility under the size requirements.

This, followed by the recent announcement by the Small Business Administration that it would conduct a full audit of any PPP loan of more than $2 million, sent small companies holding smaller loans scrambling to consider the risk of the audit, even if their need was genuine.

The Small Business Administration and the U.S. Treasury today issued an FAQ extending an automatic safe harbor to borrowers receiving PPP loans with an original principal amount of less than $2 million. These borrowers “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” The SBA states that “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.”

The FAQs can be read here. The document itself is not new, but new FAQs are periodically added to the end.

Borrowers that received PPP loans for amounts over $2 million may also be able to certify in good faith their need for the loan, but they will be subject to review and, likely, full audits by the SBA for compliance with program requirements, including the certification of economic need.  In prior communications, the SBA threatened sanctions if such need was determined to been improperly claimed, but the SBA now states that even larger borrowers will have a chance to make corrections before facing sanctions.  “If the 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 notifications from SBA, SBA will not pursue administrative enforcement. . . .”

The deadline for borrowers with access to other sources of capital to return the funds has been extended to Monday, May 18 to provide borrowers additional time to determine if they qualify for the new $2 million safe harbor.

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FOR MORE INFORMATION

For more information about the Paycheck Protection Program, please contact your attorney at Gravel & Shea PC or any of the following attorneys at the firm:

Chip Mason (cmason@gravelshea.com), Cassandra LaRae-Perez (claraeperez@gravelshea.com),  Oliver Goodenough (ogoodenough@gravelshea.com), Keith Roberts (kroberts@gravelshea.com), Pauline Law (plaw@gravelshea.com), or Catherine Burke (cburke@gravelshea.com).

Gravel & Shea PC May 13, 2020