On May 13, 2020, the Small Business Administration (SBA) issued new guidance (Frequently Asked Question No. 46) clarifying that where the PPP loans to a borrower and its affiliates aggregate less than $2 million, the borrower will be deemed to have made the required certification concerning the necessity of the loan request in good faith. The SBA said this decision reflects the economic reality that borrowers with loans below $2 million are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers with larger loans.
As described in our post on May 4, "Paycheck Protection Program Loan Forgiveness Now Conditioned on SBA Review," earlier guidance clarified that in order to certify the necessity for PPP loans in good faith, borrowers must consider their ongoing operations and access to other sources of liquidity. Borrowers that received loan proceeds but that have determined they are unable to demonstrate their need for PPP loans in good faith could repay their loans in full by May 7, 2020 and be deemed to have made the required certification of need in good faith, thus avoiding investigation and possible prosecution. Subsequently, the date by which loan proceeds can be repaid was extended to May 14, 2020, and then extended again to May 18, 2020.
Borrowers with PPP loans of $2 million or more may still demonstrate their need for their loans based on their individual circumstances in light of the language of the certification and SBA guidance.
Borrowers of any loan amount who have doubt concerning their certification of necessity will still be able to return their loan proceeds by May 18 under the “safe harbor” established by earlier guidance (Frequently Asked Questions No. 31, April 23, 2020 and No. 43, May 5, 2020) and avoid possible scrutiny by SBA.
SBA has also stated that in cases where it is determined that a borrower lacked an adequate basis for its certification of loan necessity, the borrower must repay the loan and 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 postings on this blog were created for general informational purposes only and do not constitute legal advice or a solicitation to provide legal services. Although we attempt to ensure that the postings are complete, accurate, and current as of the time of publication, we assume no responsibility for their completeness, accuracy, or timeliness. The information in this blog is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional legal counsel.
This blog may contain links to independent third party websites and services, including social media. We provide these links for your convenience, and you access them at your own risk. We have no control over and do not monitor the content or policies (including privacy policies) of these third-party websites and have no responsibility for, and no liability with respect to, their content, accuracy, or reliability. Unless expressly stated, we do not endorse any of the linked websites or any product, service, or publication referenced herein or therein. We will remove a link to any site from this blog upon request of the linked entity.
We grant permission to readers to link to this blog so long as this blog is not misrepresented. This site is not sponsored or associated with any other site unless so identified.
If you wish for Wilentz, Goldman & Spitzer, P.A., to consider representing you, please obtain contact information from the Contact Us area of this blog or go to the firm’s website at www.wilentz.com. One of our lawyers will be happy to discuss the possibility of representation with you. However, the authors of Wilentz blogs are licensed only in New Jersey and/or New York and do not wish to represent anyone who viewed this site in a state where the site fails to comply with all laws and ethical rules of that state.