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SBA Releases New Guidance on PPP Loan Good Faith Certification

May 14, 2020

Are you concerned that your PPP loan may not qualify as “necessary” under SBA guidance? We shed light on new guidance that will help you determine this.

Have you been nervous that when applying for a Paycheck Protection Program (PPP) Loan you certified that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant?” The SBA and US Treasury have provided some welcome news that may alleviate your anxiety. Read on to find out more.

More about the certification

When applying for a PPP loan, which must seem like years ago now, all borrowers had to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” (“Certification”)

What qualifies as “good faith”?

In the past few weeks the SBA and US Treasury have reminded and instructed applicants that they made “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.”

Many businesses that were economically impacted were now nervous as to what standard they would be held to as it relates to providing this certification. This led to many economically impacted businesses’ discussing whether they should actually return the PPP funds as a new provision was enacted by the SBA and US Treasury whereby an applicant would be held harmless if they were unsure of their compliance with this certification and therefore returned the funds by a certain deadline.

How do you know if you must return the PPP funds?

On May 13, 2020, The US Treasury posted Frequently Asked Question (FAQ) #46 and #47 which brings greater clarity to a cloudy issue.

Let’s start with FAQ #47 which says if an applicant is unsure of their compliance with this certification made on the application, they now have until May 18, 2020 to return the funds and be held harmless by the SBA and US Treasury. Still have anxiety about the certification, read on-

FAQ #46 provides a safe harbor provision whereby any PPP loan with an original principal amount of less than $2 million will automatically be deemed as satisfying this required certification. This is welcome news if your PPP loan is under $2 million as you no longer have to worry about the SBA or US Treasury scrutinizing your need for the loan. Of course, you still need to have followed all other laws and regulations associated with the PPP.

What is the SBA’s threshold for their review of PPP loans?

In prioritizing resources, the SBA has determined that the threshold for their review of PPP loans for compliance with laws and regulations will be those loans in excess of $2 million. We have recommended in another blog to keep a detailed due diligence file for your loan and this guidance amplifies the need for those applicants whose loans are in excess of $2 million to build an encompassing support file.

Is your loan over $2 million and you are still having some anxiety over the certification?

FAQ #46 further states that if the SBA determines upon review that the applicant lacked an adequate basis to make the certification, the SBA will notify the lending bank that the loan is not eligible for forgiveness and the SBA will seek for the applicant to repay the PPP loan. Under this circumstance, the SBA will not seek any further enforcement actions if the applicant complies and repays the loan in full. This provision may provide some additional relief for those who are still suffering from anxiety.

Navigating through all of the information and programs available to impacted businesses may be overwhelming. KLR advisors are available to assist you navigate the best path forward during this unprecedented crisis. With a completely remote workforce our advisors are always available.

Visit our Coronavirus Resource Center for more information.

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