By Ronald S. Nixon and Jack F. Petroskey

An issue of uncertainty for many businesses who acquired loans under the Paycheck Protection Program (PPP) is whether the Small Business Administration (SBA) would ultimately accept that they made their certifications that the loan was necessary to support their ongoing operations in good faith.  On May 13, 2020, however, the SBA laid the concerns of many borrowers to rest by adopting a safe harbor in a new FAQ.  Any business, including all of its affiliates, that received an original principal amount of less than $2 million will be presumed to have made the certification in good faith.  The SBA’s rationale is that borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity than borrowers that obtained larger amounts.  The SBA also admitted that there were a large amount of PPP loans and it has limited resources to audit them.  The SBA also provides reassurance to borrowers of more than $2 million that if it determines their certification was not made in good faith, the SBA would first deny eligibility for forgiveness and seek repayment of the loan.  If the loan is repaid, the SBA will not pursue the matter of the improper certification further, such as by referring it to other agencies to prosecute for fraud.  An improper certification will also not affect the SBA’s loan guarantee.  The FAQ does not address whether borrowers of exactly $2 million meet the safe harbor.

To give borrowers a chance to consider this new FAQ, the SBA also extended the repayment safe harbor deadline from May 14 to May 18, 2020.


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