Earlier today, May 13, 2020, the Small Business Administration (SBA) again updated its guidance regarding the safe harbor provision for loans disbursed under the Paycheck Protection Program (PPP), the lifeline extended to small businesses under the financial relief package known as the CARES Act.
As previously reported, the PPP loan application requires applicants to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Then, on April 23, the SBA issued FAQ 31 stating “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” SBA further provided that any borrower that applied for a PPP loan prior to the issuance of the April 23 guidance, who then repays the loan in full by May 14, 2020, will be given safe harbor and deemed by SBA to have made the required certification in good faith.
Today’s guidance updates the SBA’s FAQs regarding the program, adding FAQ 46, which provides additional details regarding the safe harbor. This latest addendum says that all PPP loans of less than $2 million “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” The SBA asserts in its guidance that such safe harbor is appropriate because such borrowers are generally less likely to have access to other liquidity sources. By granting safe harbor to these borrowers, the SBA explains that it will “conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.”
For borrowers with loans in excess of $2 million, the SBA reiterated that such loans would be subject to review by SBA, but stated that if in the course of its review, the SBA determines that such borrowers lacked sufficient basis for the required “necessity” certification, then the loan will not be forgiven, and the borrower will need to repay the funds. If the business repays the loan, then SBA will not pursue further enforcement actions.
If you received a PPP loan and are considering returning it, the safe harbor deadline is tomorrow, May 14. Contact OFP’s Corporate Group if you have questions or need assistance.