SBA provides guidance on how it will review borrowers’ good faith certification concerning necessity of PPP loans

One day before a key loan repayment deadline for small businesses, the Small Business Administration (SBA) announced new guidance extending an automatic safe harbor to borrowers who received Paycheck Protection Program (PPP) funding.

PPP loan recipients 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,” the SBA announced with a post to its website.

The announcement comes after a recent notice from the SBA that it would review borrowers that received PPP loans for amounts of more than $2 million, including the certification of economic need.  The latest guidance comes on the eve of the May 14 deadline for PPP borrowers to repay their loans under a safe harbor. The SBA added that borrowers who repay those loans even after notification from the SBA will not be subject to administrative enforcement or referrals to other agencies.

The May 14 deadline has led to anxiety among business owners eager to ensure they abide by the program’s criteria, which has continued to evolve and at times remained unclear.

Here is the full language from the SBA’s guidance Wednesday:

“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.”

If you have questions about PPP guidelines and repayment specifications, we can help provide answers. Reach out to a KraftCPAs professional for more.

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