Additional SBA Guidance Regarding PPP Loan Business Necessity Certification and New Safe Harbor for PPP Loans of Less than $2 Million

The Small Business Administration (SBA), in consultation with the Department of Treasury,  announced additional guidance regarding the required good faith certification borrowers must make concerning the necessity of the Paycheck Protection Program (PPP) loan request. In PPP loan applications, borrowers must certify in good faith that current economic uncertainty makes the loan request necessary to support their ongoing operations.

In an update to its PPP Loan Frequently Asked Questions (FAQs) on May 13, the SBA provides a new safe harbor for any borrower that, together with its affiliates, received a PPP loan of an original principal amount of less than $2 million. These borrowers will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

As previously announced by the SBA, borrowers with PPP loans in the amount of $2 million or more, and other designated PPP loans, are subject to review by the SBA for compliance with the requirements of the PPP Interim Final Rules and the Borrower Application. According to Question 46 of the updated FAQs, 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, the SBA will not pursue administrative enforcement or referrals to other agencies based on its determination that the borrower lacked an adequate basis for the required certification provided the borrower repays the balance of the PPP upon request by the SBA. The SBA will also inform the lender that the borrower is not eligible for loan forgiveness.

This new safe harbor for borrowers of PPP loan funds of less than $2 million and the additional guidance regarding the of waiver of SBA administrative enforcement and referrals to other agencies for borrowers of PPP loan funds of $2 million or more should relieve the uncertainty and concern that plagued borrowers about the business necessity certification.

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Posted by Attorney Marcia S. Orgill. Orgill concentrates her practice in the area of business and personal taxation—especially complex domestic and international tax strategies.