SBA issues guidance on need for PPP loan


The United States Department of the Treasury (Treasury) and the Small Business Administration (SBA) both continue to publish information and advice regarding the Paycheck Protection Program (PPP) and the loans available under it by the Coronavirus. Aid, Relief, and Economic Security Act (CARES Act). In a previous alert, we drew attention to the updated PPP Loan FAQs that were published by the SBA that purported to provide guidance, retroactively, on the certification that borrowers were required to do on their loans. PPP that “[c]The current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations ”(Loan Necessity Certification). In particular, the SBA guidelines urged each borrower to carefully review their previous certification of loan necessity to ensure that such certification was made in good faith, taking into account the current business activity of the borrower. borrower and its ability to access other sources of sufficient liquidity to support its ongoing operations. in a way that is not significantly detrimental to their business. If a borrower re-examines their loan necessity certification and is not satisfied with their initial certification, the SBA authorizes the borrower to return the proceeds of the PPP loan no later than May 14, 2020 and if such proceeds are returned, the Borrower is automatically deemed by The SBA must have initially performed the required loan necessity certification in good faith.

Updated guide

On May 13, 2020, in response to continued questions from borrowers on how the SBA will actually review loan necessity certifications made in PPP loan applications, the SBA released updated guidance for the PPP Loan FAQ. in the form of FAQ 46.

46. ​​Question: How will the SBA review the good faith certification required of borrowers regarding the necessity of their loan application?

Reply: When submitting a PPP application, all borrowers must certify in good faith that “[c]The current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations. The SBA, in consultation with the Treasury Department, has determined that the following safe harbor will apply to the SBA’s review of PPP loans regarding this matter: Any borrower who, along with its subsidiaries, has received PPP loans from ‘an initial principal amount of less than $ 2 million will be deemed to have made the required certification in good faith as to the necessity of the loan application.

The SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have access to adequate sources of liquidity in the current economic environment than borrowers who have obtained loans. more important. This safe harbor will also promote economic security, as PPP borrowers with more limited resources will strive to retain and rehire their employees. Additionally, given the large volume of PPP loans, this approach will allow the SBA to keep its limited audit resources and focus its reviews on larger loans, where the compliance effort can generate higher returns.

It is important to note that borrowers with loans greater than $ 2 million who do not meet this Safe Harbor may do so. always have an adequate basis for establishing the required good faith certification, based on their individual circumstances in light of the language of certification and SBA guidelines. The SBA has previously stated that all PPP loans over $ 2 million, and other PPP loans, if applicable, will be subject to review by the SBA to verify their compliance with the program requirements set out in the interim final rules. of the PPP and in the borrower’s application form. If the SBA determines during its review that a borrower did not have an adequate basis for the required certification regarding the necessity of the loan application, the SBA will request repayment of the outstanding balance of the PPP loan and notify the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving the notification from the SBA, the SBA will not pursue administrative execution or referrals to other agencies based on its determination regarding the certification regarding the necessity of the loan application. . The SBA’s decision regarding certification of the necessity of the loan application will not affect the SBA loan guarantee.

Impact of updated guidelines

The updated Treasury guidelines provide a number of positive clarifications for borrowers under the PPP loan program:

The SBA has created a safe harbor such that any borrower who, along with its affiliates, has received PPP loans with a total initial amount of less than $ 2,000,000 will be considered by the SBA to have made their loan necessity certification. in good faith.

Borrowers with PPP loans greater than $ 2,000,000 will continue to be subject to a potential review by the SBA on loan necessity certification. If the SBA determines during its review that the borrower does not have an adequate basis for its certification of loan necessity, the SBA will request full repayment of the outstanding balance of the PPP loan and notify the lender providing that loan that the affected loan is not eligible for forgiveness. However, if the borrower repays the PPP loan, the SBA will not exercise any further administrative recourse or referral from the borrower to other agencies for further action. This guidance is likely good news for borrowers who previously considered returning their PPP funds for fear of possible further enforcement or litigation by the SBA or Treasury (or at their encouragement) regarding their certifications of. need for loan.

Note that although the updated SBA and Treasury guidelines provide a safe harbor for borrowers with PPP loans under $ 2 million when it comes to loan necessity certification, all borrowers are still potentially subject to SBA review of other aspects of their PPP loans. , including the calculation of the maximum loan amount, the eligibility conditions with respect to the number of employees and associated SBA membership rules, and the use of the loan proceeds.

Additionally, although the SBA has stated that it will not refer other agencies for further action in connection with its request for repayment of a PPP loan, this directive does not bind any other government agency or whistleblower. to pursue such action unilaterally on its own accord. With this in mind, we always encourage borrowers, regardless of the size of the PPP loan, to review loan necessity certifications and reduce the written review and analysis they have undertaken to assess their certifications of necessity. loan.

Next steps

We believe that this safe harbor will be the subject of a new interim rule in the near future. With this new interim rule, borrowers can get more guidance on some of the remaining open questions about the safe harbor scope and any potential reach to other agencies that might otherwise have standing to pursue claims against a borrower in the future. and around the need for loan. Certificate. Subsequently, we expect the Treasury to issue guidelines and rules on matters affecting the calculation of loan cancellation, which remain ripe for clarification.

© 2007-2021 Hill Ward Henderson, All rights reservedRevue nationale de droit, volume X, number 134

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