SBA Provides Safe Harbor to PPP Borrowers with Loans Less than $2 Million May 13, 2020

kpg_headshotSBA Provides Safe Harbor to PPP Borrowers with Loans Less than $2 Million
By: Kyle P. Graham

The Small Business Administration (SBA) released Frequently Asked Question #46 today for the Paycheck Protection Program (PPP).  FAQ #46 asks, “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”  The SBA’s response establishes a safe harbor for borrowers with loans less than $2 million and provides borrowers with the option to repay their loans if they are deemed to be ineligible for the program by the SBA.

The SBA reiterates in FAQ #46 that 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 determined, in consultation with the Department of the Treasury, that any borrower that received PPP loans with an original principal amount of less than $2 million will be deemed to have made the certification concerning the necessity of the loan request in good faith.  Given the large volume of PPP loans, this safe harbor will allow the SBA to conserve its audit resources and focus its reviews on larger loans.

Additionally, borrowers with loans greater than $2 million may still have an adequate basis for making the good faith certification, based on their individual facts and circumstances.  The SBA has previously stated in FAQ #39 that all PPP loans in excess of $2 million will be reviewed for compliance with the program’s requirements.  FAQ #46 provides that if the SBA determines during the course of its review that the borrower lacked the adequate basis to make the certification concerning the necessity of the loan request, the SBA will seek repayment of the outstanding loan balance and inform the lender that the borrower will not be eligible for loan forgiveness.  If the borrower repays the loan after receiving this notification from the SBA, the SBA will not pursue administration action or referrals to other agencies.

Kyle Graham is an attorney at the Cleveland, OH-based law firm McCarthy, Lebit, Crystal & Liffman. 


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