Financial Poise

SBA Grants Safe Harbor for PPP Loans Under $2M

Here’s What You Should Know About the PPP Good-Faith Certification Requirement

On May 13, 2020, the Small Business Administration (“SBA”), in consultation with the Department of the Treasury, issued a new FAQ regarding the good-faith certification under the Paycheck Protection Program (“PPP”), essentially backing off the threat to audit PPP loans of less than $2 million. The safe harbor for PPP loans has been extended to May 18th (previously May 7th).

This is a welcome relief to small businesses, as prior FAQs and other guidance from the SBA and Treasury Department seemed to imply that all PPP loans were subject to audits and potential civil and criminal penalties for improper certifications in connection with receipt of a PPP loan.

Do You Meet the Good-Faith Certification?

As we outlined previously on SBA audits, the PPP loan application requires a good-faith certification, which implies, among other things, that applicants certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The safe harbor for PPP loans urged lenders to return funds if, based on the additional guidance on the certification, borrowers believed that they could no longer make such certification in good faith. Now, the SBA has effectively reversed course and, on the day before the repayment deadline, has issued new guidance that any loans totaling less than $2 million for a borrower and any affiliates will be deemed to have met the good-faith certification.

If based on the prior audit uncertainty you elected to return your PPP loans or are in the process of doing so, and your loan amount was less than $2 million, we recommend that you contact your banker as soon as possible to see if there is a way to pull it back before the May 18th return date.

What to Do If You Miss the Date for Safe Harbor for PPP Loans

If your PPP loan amount is in excess of $2 million, however, we continue to recommend reviewing your individual facts and circumstances and returning the funds no later than May 18th if you can no longer make the good-faith certifications.

That being said, in the same FAQ as discussed above, the SBA has indicated that so long as a borrower returns the PPP loan funds after receiving a notification from the SBA (i.e., that the SBA has made the determination that a borrower lacks an adequate basis for the required certification concerning the necessity of the loan request), SBA will not pursue administrative enforcement or referrals to other agencies based on its determination.

[Editor’s Note: For more business and financial information regarding COVID-19, read “Coronavirus (COVID-19), Your Business & Your Money: A Financial Resources Guide.” To learn more about this and related topics, you may want to attend the following webinars: Basic Concepts Applicable to All Borrowers & Lenders and Alternative Structures – PO Financing, Factoring & MCA.]

©All Rights Reserved. May, 2020. DailyDACTM, LLC d/b/a/ Financial PoiseTM

About Jeremy Waitzman

Jeremy Waitzman advises his clients on significant transactions and operational issues in their businesses. Described by clients as “an essential business advisor” and “a partner in the success of my business,” Jeremy has substantial experience representing businesses of all types and sizes from inception, guiding them through significant growth, and often through ownership’s exit.  His…

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