SBA Adopts “Safe Harbor” Provision for PPP Loan Recipients Under $2 Million
In response to public criticism regarding the disbursement of loans to larger companies, on April 23, the Small Business Administration (SBA) issued guidance stressing that Paycheck Protection Program (PPP) loan applicants needed to certify in good faith that current economic uncertainty made the loan request necessary to support ongoing operations. The SBA had earlier noted that if borrowers did not believe they could substantiate the economic uncertainty, they could repay their PPP loan by May 14, 2020 (this repayment was originally scheduled for May 7, 2020, but the SBA postponed this by one week). This earlier direction provided no guidance or definition of whether the PPP loan was “necessary to support ongoing operations.” On Wednesday May 13, 2020, the SBA updated its FAQ document to clarify that it will presume borrowers who received less than $2 million in loans made the required certification in good faith, and that SBA would presume that the loan was “necessary to support ongoing operations.” In addition, if the SBA finds that borrowers who received more than $2 million in loans lacked an adequate basis for the certification, the SBA will seek repayment of the outstanding loan balance and inform the lender the borrower is not eligible for loan forgiveness. If the borrower repays the loan, the SBA will not pursue administrative enforcement or referrals to other agencies regarding the certification requirement.