SBA Issues Guidance on the Paycheck Protection Program
On Wednesday, the Small Business Administration (SBA) published guidance regarding its intended approach to review borrower certifications that a Paycheck Protection Program (PPP) loan was necessary to support ongoing operations.
When submitting a PPP application, all borrowers must certify in good faith that “current 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.
For Loans Under $2 Million
Their guidance includes a safe harbor for loans under $2 million. “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.”
For Loans Over $2 Million
Loans over $2 million “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 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 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.” This means that the SBA will not pursue other enforcement actions other than requesting the repayment of the loan.
Some measurables to consider for justifying if you needed the loan include a decrease in revenue/profit, a decrease in collection speed on outstanding accounts receivable, and other liquidity ratios.
View the SBA’s FAQ #46 here: