Good Faith Certification for Necessity of PPP Loans Causing Concern? Worry No More!
Late in the morning on Tuesday, May 13, 2020, the Small Business Administration (“SBA”) released additional guidance regarding loan forgiveness under the Paycheck Protection Program (“PPP”) that many borrowers have been waiting for. This additional guidance clarifies only one issue: good faith economic necessity and the certification each borrower executed regarding this necessity.
The new guidance is good news for borrowers – large and small, as it provides an unqualified safe harbor for all borrowers that received loans through PPP of less than $2 million and clarity of the opportunity to avoid any negative consequences for borrowers that received loans of $2 million or more.
Any borrower that, together with its affiliates, received less than $2 million in PPP funds automatically meets the SBA’s good faith criteria with no further inquiry. Borrowers in this range have little risk as to this certification upon review for forgiveness. (We expect that if cause exists for the SBA or a lender to question good faith, investigation could ensue. Regulations in this respect are not yet written or provided.)
For borrowers with loans greater than $2 million of PPP funds, if the SBA (it is presently unknown how the SBA will reach this conclusion) determines that a borrower lacked an adequate basis for the required good faith certification, the SBA will notify the borrower and the lender. The borrower can then repay the loan with no further penalty or investigation. Presumably, the borrower would be able to challenge such a conclusion.
SBA also announced that it will extend the deadline for borrowers to return funds through May 18, 2020 extended from the original May 14, 2020 deadline.
While this guidance is helpful, the scope of this present guidance is disappointing, as a host of unanswered questions remain. Borrowers are still seeking guidance on: (i) measuring period; (ii) employees who do not return; (iii) calculating RIF or no RIF. The mandatory State closure of several industries has left small business owners with little to no payroll obligations and many open questions about loan forgiveness.
Borrowers should continue to monitor developments, and contact your WHP counsel with any questions you may have. We are here to help!
As with other recent guidance, this new guidance was issued in the form of Frequently Asked Questions (“FAQs”). These FAQs can be found at: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf.
This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.