On Wednesday, May 13th, the SBA released additional guidance on PPP loan forgiveness. In this update, we will provide information on the newly issued FAQ-46 as well as information on a LaPorte webinar on the PPP loan forgiveness application.
This FAQ provides guidance as to how the SBA will review a borrower’s request for a PPP loan to make sure the borrower meets the good-faith certification requirements. The guidance provides that essentially any borrower who received less than $2 million from the fund will automatically fall under a safe-harbor and not be subject to review. For those that received loans in excess of $2 million, they will be subject to review. If the SBA finds the borrower was not eligible for the loan, then that borrower will not be eligible for forgiveness, and the SBA will seek immediate repayment of the loan. Here is the FAQ as drafted:
46. 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 affiliates20, 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.
20 For purposes of this safe harbor, a borrower must include its affiliates to the extent required under the interim final rule on affiliates, 85 FR 20817 (April 15, 2020).
PPP Loan Forgiveness Application
Additionally, the SBA released the PPP Loan Forgiveness Application last week. While no new interim rules or FAQs regarding forgiveness were released along with the application, the application does provide some idea of what future guidance related to loan forgiveness will provide. While we want to keep you abreast of all updates, there are still too many general questions that will need to be addressed regarding the loan forgiveness application at this time. LaPorte is monitoring all additional guidance and will be hosting a webinar on this topic in the coming weeks. Contact a LaPorte professional if you would like to be notified when additional details become available.