Good News on Good-Faith Certification, SBA Clarifies Guidance for PPP Loans Under $2M

On May 13th, the Small Business Administration (SBA) issued new guidance that provides much needed clarity around the “good faith” certification for Paycheck Protection Plan (PPP) loan forgiveness.

The uncertainty surrounding certification caused many businesses to consider returning PPP funds or stop their application altogether.

Question 46 of the SBA’s Frequently Asked Questions PDF, available from the treasury.gov website, now explains that a “safe harbor” will apply to 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.

Here is the latest SBA Guidance on Safe Harbor for PPP Loans Less Than $2M

From the SBA:

Question 46: 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, 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.

This new guidance restores the PPP’s original purpose of ensuring that businesses have the financial resources to keep employees paid while many government-mandated stay-at-home orders remain in place and wide-spread economic impacts are felt by all types of businesses.

Restoring the Intent of the PPP Loan to Provide Needed Economic Relief to Small Businesses Without Broader Access to Capital.

The SBA warned April 23 that businesses with substantial access to liquidity may not qualify for PPP loans, and several larger companies returned their PPP funds. On April 28, Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza announced that the SBA will review all PPP loans in excess of $2 million to make sure borrowers’ self-certification for the loans was appropriate (Source: Journal of Accountancy). 

Demand for PPP funds has stalled as some small business leaders have grown concerned over whether they may face government penalties or worse.

In response, the AICPA, the National Federation of Independent Business, the S Corporation Association, and four other small business advocacy organizations urged the U.S. Small Business Administration (SBA) to provide small businesses with clarity related to Paycheck Protection Program (PPP) funds.

What if Your PPP Loan is More Than $2M?

From the SBA:

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.

Companies should always have documentation well organized in the event of an audit.  

If you have not done so already, we suggest documenting your basis for needing the loan and the impact the pandemic (such as closures, delayed orders, workforce reductions and work-from-home measures) has had on your business.

For More Information or Assistance with Your PPP Loan Forgiveness

For guidance and specific support services to help you navigate the complex PPP loan forgiveness process, please contact us. We are here to help.

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