PPP Update – New Loan Certification Guidance

We are pleased to provide you an update regarding additional guidance issued by the U.S. Treasury regarding the Paycheck Protection Program (PPP).  In their latest FAQ, the U.S. Treasury has provided the following question and answer related to updated guidance for certifications made by borrowers of PPP loans:

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.”  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: Any borrower that, together with its affiliates (for purposes of this safe harbor, a borrower must include its affiliates to the extent required under the interim final rule on 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.

SBA has determined that this safe harbor is appropriate because 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 that 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 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. 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 SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form.  If 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. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.

Per our previous communication, we encourage PPP loan recipients to consider their certification and whether any changes have occurred that require consideration for returning the loan proceeds.  Please note the primary update in this guidance refers to how the SBA will review loans less than and greater than two million dollars ($2,000,000) from a compliance perspective.  If you did receive and decide to keep PPP funding, it is critical that you maintain complete and accurate documentation to support your eligibility for such funding (particularly for loans greater than $2,000,000), the specific use of these funds, and your qualifications for forgiveness under the terms of the program.  Any business that received a PPP loan prior to the issuance of recent guidance and who now believes that they do NOT demonstrate the necessity for the loan can repay the loan in full by May 14, 2020.  Any business that does so will be deemed by the SBA to have made the required good faith certification on their PPP loan application.

As a reminder, RS&F is able to assist clients to determine loan forgiveness.  We have developed a PPP loan forgiveness model for this purpose that will both track eligible expenses as well as project loan forgiveness.  Please contact your RS&F Client Advisor to obtain this schedule and for assistance with PPP loan forgiveness.