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PPP Loan Forgiveness: Latest Update Appeases Fears for Millions of Americans

5/13/20 – Brian Malthouse

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Wednesday, May 13, 2020, the Treasury Department and the SBA announced (via Twitter) some very good news regarding the PPP loan certification as it relates to the necessity of a borrower’s loan request. The news was included in the updated Q&A section (now up to 46 questions) on the SBA website, SBA.gov.

In a previous update, we discussed how the SBA provided guidance that required each PPP loan recipient to certify items that were not in the original CARES Act language. This new guidance, coupled with the press and political rhetoric, made PPP loan recipients fearful, with many considering returning the money before the May 14, 2020 deadline.

The following update, Q&A #46, should alleviate the fears that many PPP loan recipients have been having.  First off, any PPP loan under $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith. This guidance continues to follow the intent of the CARES Act PPP provisions, that is to help small business continue to operate and pay their employees. If your PPP loan was greater than $2 million, the SBA had previously stated that your loan would be subject to review by the SBA for compliance with the programs requirements, which is not unreasonable and really nothing to fear.  Secondly, this guidance spells out that if the SBA determines in the course of its review that a borrow lacked an adequate basis for the required certification concerning the necessity of the loan request, the SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. Many of the articles and updates concerning the PPP loan had instilled fear of consequences including jail time, if you received a PPP loan and failed the SBA’s pretty nebulous certification. Today’s update should give millions of American’s peace of mind. .

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.” The SBA, in consultation with the Department of the Treasury, has determined the following safe harbor will apply to the 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. The SBA has determined this safe harbor is appropriate as 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 who 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 the 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. The 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 the SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If the 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 the SBA, 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. The SBA’s determination concerning the certification regarding the necessity of the loan request will not affect the SBA’s loan guarantee.

For any questions related to this update, the PPP Loan program, or general COVID-19 related guidance, contact VonLehman’s specialists today at info@vlcpa.com or 800.887.0437.