SBA Issues Good-Faith Certification Safe Harbor for Paycheck Protection Program Loans of Less Than $2 Million

This morning (May 13, 2020), the Small Business Administration (“SBA”) published Paycheck Protection Program (“PPP”) Loans Frequently Asked Question (“FAQ”) #46 and its answer. The SBA provides therein that 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 in good faith the required certification in its application concerning the necessity of the loan requested.

This required certification has been the source of significant controversy. The controversy has slowed down the demand for the second tranche of PPP loans. You can learn more about that controversy as discussed in two of our recent commentaries on our website, by clicking here.

The SBA decided that a $2 million loan is a reasonable measurement of a business’ access to capital. The SBA says that further documentation of the request and further review of the “access to adequate sources of liquidity” during the COVID-19 crisis is not necessary for a business obtaining a PPP loan of less than $2 million.

The SBA goes on to say that a business that receives a PPP loan of greater than $2 million may still have an adequate basis for making the good faith certification. However, the FAQ implies that the certifications of such loans will be reviewed.

The FAQ goes on to set forth generally the remedy for a greater-than-$2 million loan where the SBA finds that the borrower lacked an adequate basis for making the required good-faith certification and notifies the borrower of its decision. If the borrower repays the loan after notification from the SBA, “SBA will not pursue administrative enforcement or referrals to other agencies based on its determination…“ See FAQ #46 in its entirety by clicking here.

A side note: the new FAQ #46 addresses loans of less than $2 million and loans of greater than $2 million. It does not address loans of exactly $2 million. We hope that is not your PPP loan amount. If so, at least for now, your loan is not addressed in FAQ #46.

Many questions still exist with regard to PPP loans and the rules for forgiveness of all or part of a PPP loan. However, this bright-line test brings relief to many small businesses that have obtained or are seeking PPP loans.

For more information check out HM&M’s COVID-19 Resources page.

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