As promised, today the SBA published its latest round of guidance on the Paycheck Protection Program (“PPP”) and the “good faith” certification. We have discussed this topic in detail here and here. Back on April 23rd, in light of public outcry over large, publicly traded companies receiving PPP loans, the SBA clarified that only companies without access to sources of liquidity could certify in good faith that they needed a PPP loan and gave companies until May 7th to return loans.
Unfortunately this raised more questions than it resolved. Last week, the SBA extended its Safe Harbor date and promised more guidance on what constitutes a “good faith” certification. Today they issued that guidance.
Specifically, today the SBA stated that:
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.
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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 a nut shell, this means that if you borrowed less than $2 million, the SBA will not question your certification without some overt evidence of fraud or false statements in the application. (Note, loan forgiveness is separate topic, here is article outlining, in part, criteria for forgiveness).
For companies that borrowed more than $2 million. The SBA will audit the loan application and, presumably, the loan usage. However, if the SBA does determine that the borrower’s certification was not in good faith, the SBA will seek repayment for the outstanding loan balance and reject any claim for loan forgiveness. As long as the borrower pays the loan back in full, the SBA will not pursue administrative enforcement.
This is not a carte blanche to accept a loan and take your chances. If the SBA were to determine that a certification was not an honest mistake but was deliberately misleading, I am sure they will have no issues referring a false certification accusation for an enforcement action. Frankly, no one knows where the SBA will draw that line in several months when they start reviewing these loan applications.
For smaller loans, the real issue now is what can you do if you rejected or returned your loan under earlier guidance? At this point, I would say that if you were in a shade of gray and on the fence about needing the loan, you should reach out to your bank and see if you can re-start the application. It would be fair to say that the SBA’s guidance over the past few weeks has been unclear and many companies erred on the side of caution. Now that the SBA has issued clarification, if you can legitimately show the need for the loan, you should try to re-apply. Just keep in mind that the Government is always able to (and often does) change its mind on what the applicable standards are; so always tread cautiously.
Also, for the Federal Contractors out there, you have to worry about more than the certification issue – you are still on the hook for a potential payback of your “forgiven” loan. As I discussed in this webinar and this article, the Government may seek a credit for a forgiven PPP loan under one of your contracts. In the Government’s mind they are paying you twice and will want some of the money back. I encourage you to call before asking for your loan to be forgiven to walk through the ramifications.
If you have any questions please reach out to Craig Lawless, lawless@gcpc.com, contact us at info@gcpc.com, or call us at (703) 556-0411.