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Good News for PPP Loan Borrowers

POSTED 05/14/2020

For Loans Under $2M…and Some News For Others, Too!

As we have previously stated, there is a fair amount of uncertainty regarding all of the rules surrounding the Paycheck Protection Program (PPP). One item which caused concern among many small businesses was the previous SBA guidance regarding the good-faith certification required as part of the PPP application. Due to the onerous punishments allowed under the legislation, including criminal punishment and civil penalties, many borrowers wondered if they should just give the money back rather than navigate these vague terms.

While we previously expected an Interim Final Rule to provide borrowers with guidance related to the good-faith certification, the SBA and Treasury instead provided FAQ #46 to address concerns caused by guidance issued in prior FAQs. The good news is the FAQ indicates that loans with an original principal amount of less than $2 million will be deemed to have made the required certification in good faith. This guidance should relieve concerns for these borrowers as to what the SBA will consider a good faith certification.

It has been determined that borrowers with loans below the $2 million threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers who obtained larger loans.

For borrowers with loans in excess of $2 million, there was some guidance, just not the amount that we had hoped. The FAQ makes the following critical points:

  • The FAQ recognizes that borrowers with loans greater than $2 million may still have an adequate basis for making the required good faith certification, based on their specific circumstances
  • The FAQ also indicates that if the SBA determines in the course of its review that a borrower lacked the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding loan balance and will inform the lender the loan is not eligible for forgiveness
  • Most importantly, if the borrower repays the loan after receiving a determination from the SBA that the loan was not “necessary,” the SBA will not pursue administrative enforcement or referrals to other agencies with respect to such certification

The SBA also posted FAQ #47, which extends the safe harbor date to return funds from May 14 to May 18. This extension gives borrowers a few extra days to digest the FAQ and make a decision. While we would like to say we expect more guidance before May 18, at this point we wouldn’t count on it. It is likely you will have to make a decision based on the information that’s been issued to date.

There are still a lot of unanswered questions for borrowers with loans above the $2 million threshold requiring business decisions to be made while dealing with uncertain legislation. Borrowers with loans under $2 million should feel confident in their certifications. Clayton & McKervey will continue to keep you updated as guidance is issued.