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Finance expert Herring summarizes PPP loan safe harbor

May 13, 2020 -  By
Photo: Enterline Design Services LLC/iStock / Getty Images Plus/Getty Images

Photo: Enterline Design Services LLC/iStock / Getty Images Plus/Getty Images

The Small Business Administration (SBA) released FAQ 46 today related to safe harbor for Paycheck Protection Program (PPP) loans. It is copied below.

Here is the summary:
• Under $2 million PPP loan (in aggregate with affiliates – a defined term): Borrowers will be deemed to have made a good faith certification concerning necessity.
• Over $2 million PPP loan: The SBA will review these loans. If the SBA determines that the loan is not eligible for forgiveness and if the borrower then repays the loan, the 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.”

This answer effectively eliminates many of the risks regarding the certification of necessity for borrowers with loans of less than $2 million. It may also eliminate the risks for a borrower with a loan over $2 million if the borrower repays the loan. (That issue is for an attorney.)

Note that a company’s acceptance of a PPP loan could still be disclosed publicly.

The SBA should release more information on the forgiveness aspects of PPP, including full-time employee calculations, in the next few weeks.

Here is the FAQ 46 announcement in full:
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, *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.

*For purposes of this safe harbor, a borrower must include its affiliates to the extent required under the interim final rule on affiliates, 85 FR 20817 (April 15, 2020).

Read the SBA’s previous FAQs regarding the PPP here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

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