Sweet Relief For Borrowers With PPP Loans of Less Than $2 Million

Taylor Gaver, Steve Kesten

On May 13, 2020, the Department of Treasury in conjunction with the Small Business Administration (“SBA”), published Frequently Asked Question No. 46 regarding the borrower’s good faith certification concerning the necessity of a loan under the Paycheck Protection Program (“PPP”).  First, any borrower, together with its affiliates, that received a PPP loan of less than $2 million will be deemed to have made the required certification regarding the necessity of the loan in good faith.  The reason for this set forth by the SBA is that borrowers that received loans under the $2 million threshold are less likely to have access to adequate sources of liquidity and this threshold will allow the SBA to conserve its finite audit resources.

Further, borrowers who received PPP loans in an amount greater than $2 million can expect to be audited by the SBA; however, the FAQ makes it clear that such borrowers may still have an adequate basis for making the good-faith certification based on their individual circumstances.  If during the audit the SBA determines that a borrower lacked an adequate basis for making the certification concerning the necessity of the PPP loan, then the loan cannot be forgiven, and the SBA will require the borrower to repay the PPP loan.  If the loan is repaid in full, the SBA will not pursue any further penalties or punishment through other administrative agencies for the borrower.

For those borrowers who received PPP loans in excess of $2 million and who misunderstood or misapplied the statutory certification standard, or are otherwise extremely concerned about whether their certification regarding the necessity for a PPP loan will be found to have been in good faith, the SBA created a safe harbor which states that any borrower that returns PPP loan proceeds by a certain date will be deemed to have made the certification in good faith.  Frequently Asked Question No. 47 extended the safe harbor return date to May 18, 2020.