SBA Clarified Good-Faith Certification Requirements for PPP Loans
The SBA has published new guidance stating 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 the required certification concerning the necessity of the loan request in good faith.”
On April 23, 2020 the SBA and Treasury updated their FAQ with Question and Answer No. 31, stating that while certain SBA loan eligibility requirements had been suspended for purposes of PPP Loans, all borrowers should carefully review the required good-faith certification made when applying for a PPP Loan. This required loan applicants to certify in good faith that “economic uncertainty [at the time of the loan application] makes this loan request necessary to support the ongoing operations of the Applicant.” The answer expanded this requirement though, stating that a Borrower’s certification made at the time of the application must have taken into account their ability to access other sources of liquidity. On April 28, 2020, FAQ No. 37 came out clarifying that this requirement applies to private businesses as well, regardless of size.
The new requirement regarding assessing liquidity caused so much confusion among current Borrowers that many were considering simply returning their loans for fear they would not be able to meet the new, ambiguous, test of alternative liquidity. The SBA and Treasury heard these concerns, and on May 13, 2020, issued FAQ No. 46.
FAQ No. 46 asks “[h]ow will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?” The answer: borrowers who received loans of less than $2 million will be deemed to have made the required good faith certification regarding necessity.
The SBA reasoned that the safe harbor was appropriate because borrowers with loans below this threshold are generally less likely to have access to adequate sources of liquidity in the current economic environment. This guidance provides some much needed clarity, and certainty, for these borrowers.
The SBA goes on to state that just because a borrower’s loan exceeds $2 million does not mean they will not be able to meet the good faith certification regarding necessity. Instead, they will be judged based on their individual circumstances. If the SBA determines in the course of its review that such borrower “lacked an adequate basis for the required certification” the SBA will inform the lender that forgiveness will not be allowed, and repayment will be required. If the borrower then repays the loan, the SBA will not pursue administrative enforcement and will not refer the matter to other agencies based on the certification.
While there are still plenty of questions about use and calculating forgiveness, this guidance provides much needed certainty regarding the good faith certification requirements necessary for many Borrowers.
If you have questions about how this new guidance applies to you and your PPP Loan, or about calculating forgiveness, please contact one of our attorneys today.