There has been much confusion due to a lack of detailed guidance related to a borrower’s requirement to “certify their need” for a PPP loan considering “other sources of liquidity”. Our previous blog post, SBA Announces Retro-Active Change to Paycheck Protection Loan Program, discussed this issue.
Earlier today, May 13, 2020, the SBA released FAQ #46 granting a safe harbor for many borrowers.
Under the “safe harbor,” all loans with an original amount of under $2 million will be deemed to have met the certification requirements in good faith.
The SBA recognizes that borrowers with loans greater than $2 million may 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. Their certifications will be subject to review by the SBA.
Upon review of loans in excess of $2 million, the SBA may determine that the borrower lacked an “adequate basis” for the required certification. The borrower will then be required to repay the loan and will not be eligible for any forgiveness. If the loan is repaid, the SBA will not pursue enforcement actions. The SBA did not provide guidance as to how it will evaluate if the borrower had “adequate basis” for making the required certification.
Borrowers who do not meet the certification requirements still have until May 18, 2020 (FAQ #47) to return their loan proceeds under the previously announced safe harbor.
Returning a portion of the loan funds on May 18th to bring the balance under $2 million, will not allow the borrower to be eligible for the safe harbor discussed above, as the original loan amount must be under $2 million.
It is anticipated that the SBA will issue an Interim Final Rule adopting and further clarifying this FAQ.
If you would like to discuss this further, please do not hesitate to contact us.