COVID Financial Management
May 13 Guidance: PPP Certification Requirements Clarified, Safe Harbor Date Extended
This article was originally published on May 13, 2020. It was updated on May 14, 2020, to reflect Treasury FAQ #47, which extends the repayment date for the safe harbor from May 14, 2020 to May 18, 2020.
- Treasury releases additional guidance on the economic necessity certification for PPP loans.
- As guidance continues to be released, we’ll share updates.
- Consider the steps you can take to help your organization qualify for PPP loan forgiveness.
- Repayment date for the safe harbor extended from May 14, 2020 to May 18, 2020.
The U.S. Department of the Treasury has issued guidance that clarifies how the Small Business Administration (SBA) will review a borrower’s required good-faith certification concerning the necessity of the borrower’s PPP loan request. FAQ #46, issued on May 13, provides 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.” It should be noted that this $2 million threshold will not be solely based on the loan size of the borrower, but rather will be based on the aggregate loans of the borrower and all of its affiliates.
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The new FAQ also provides some comfort for borrowers with loan sizes over $2 million, by explaining that the SBA will not pursue administrative enforcement or referrals to other agencies with regard to a borrower that repays a PPP loan after receiving notification from the SBA that the SBA has determined that the borrower lacked an adequate basis for the required certification concerning the necessity of the loan request.
Treasury issued FAQ #47 later in the day on May 13, 2020, further extending the repayment date for the safe harbor discussed in FAQ #31 from May 14, 2020 to May 18, 2020. Borrowers do not need to apply for the extension.
Here is the actual text of FAQ #46:
46. Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?
Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates,20 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.
SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.
Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.21
How we can help
We will continue to share information surrounding PPP loans, other economic relief programs and alternate funding solutions. We can help you look to a future beyond COVID-19, using CLA Intuition® 2.0 to create interactive modeling dashboards and come alongside you to help develop a strategy.