PPP Safe Harbor Updates
We shared with you on May 6, 2020 that new guidelines had been released regarding the Paycheck Protection Program (PPP). In previous announcements the date for repayment under the Safe Harbor, if deemed necessary, was scheduled for May 7, 2020. However, that was extended to May 14, 2020. This extension is presumably in recognition of the fact that additional guidance was necessary regarding the borrower’s certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
When completing the PPP loan application, borrowers certified in good faith at the time of the loan application that the current economic uncertainty makes the loan request necessary to support ongoing operations of the applicant. The additional guidance to this certification states that in good faith they have reviewed their business activity and their ability to access other sources of liquidity to be eligible for the PPP loan.
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. 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.*
*Credit content to SBA – Source of Information:
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