COVID-19 UPDATE: SBA Issues Safe Harbor Guidance on PPP Loan “Necessity”May 13, 2020
Prior to the May 14, 2020 extended safe harbor deadline to return any Paycheck Protection Program (PPP) Loan money for borrowers who do not meet the program’s “necessity” certification requirements, SBA has released updated guidance via the FAQ (see #46). SBA has clarified, “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.” Functionally, SBA appears to be creating a “necessity” safe harbor for all borrowers with loan amounts of less than $2 million (when aggregated with any “affiliates”). This updated guidance should put those PPP borrowers who applied for loans of less than $2 million at ease. SBA further explains that this guidance serves a dual purpose of promoting economic certainty for borrowers while also allowing SBA to focus their limited enforcement resources on borrowers of larger loans.
PPP borrowers of more than $2 million can also take some solace because SBA also explained that the anticipated recourse against those borrowers who might not have met the necessary requirements will be loan repayment rather than criminal prosecution. “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.”
At the same time, nothing in this guidance can be expected to provide a safe haven for borrowers who fraudulently applied for PPP funds. Any borrower who falsified information in their application or otherwise knew that they were ineligible remains under SBA scrutiny.