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May 15, 2020
Update Regarding SBA Review of PPP Loan Certification

On May 13, 2020, the Small Business Administration (SBA) and the Department of Treasury (Treasury) updated the Paycheck Protection Program (PPP) FAQs to address SBA’s review of the good faith certification of borrowers who received PPP loans.

Recommended Borrower Good Faith Certification Review
Treasury and SBA recommend that all borrowers who received PPP loans review the good faith certification they made on their application regarding the necessity of their loan request.

Deadline to Return Loans Prior to SBA Review
Borrowers have until May 18, 2020 to voluntarily return their loans before SBA will begin its loan review process.

SBA Loan Review of Loans Greater Than $2 million
PPP loans in excess of $2 million will be subject to SBA review as to whether the “borrower lacked adequate basis for the required certification concerning the necessity of the loan request”.  

If SBA determines that the borrower’s certification was not made in good faith, SBA will notify the borrower, seek repayment of the loan, and inform the lender that the loan is not eligible for forgiveness.  If the loan is repaid after the borrower is notified, SBA will not pursue further administrative enforcement.

“Safe-Harbor” for Loans Less Than $2 million
SBA has determined that a “safe harbor” will apply to borrowers who (together with their affiliates) received loans of less than $2 million. The good faith certification of these borrowers will not be reviewed by SBA.

The full text of this latest FAQ regarding the review process (Question #46) can be found below:

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 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.

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