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Covid-19 News

Updated PPP Guidance (SBA Frequently Asked Questions)

To be eligible for a Paycheck Protection Program (“PPP”) loan under the CARES Act, applicants must certify in good faith that “[c]urrent economic uncertainty makes [the] loan request necessary to support the ongoing operations of the Applicant.” For applicants who knowingly make a false statement when applying for a PPP loan, the Borrower Application Form warns of various criminal penalties.[1]

In the days since the CARES Act’s enactment, there has been concern that PPP applicants may be certifying a loan as “necessary to support the ongoing operations” of a business when the loan may in fact not be necessary. To ensure compliance with PPP requirements, especially in light of the above-mentioned penalties, borrowers and lenders alike have sought guidance from the Small Business Administration (“SBA”) pertaining to the required certifications and the definition of “good faith.” In response, the SBA created a safe harbor time period, stating that borrowers will be deemed to have made the required certification in good faith so long as the borrowers applied for the PPP loan prior to April 24, 2020 and repay the PPP loan in full by May 18, 2020.[2]

On May 13, 2020, the SBA, in consultation with the Department of the Treasury, released additional guidance that may alleviate the concern of some PPP borrowers.[3] Specifically, FAQ #46 states if a borrower, together with its affiliates, receives PPP loans with an original principal amount of less than $2 million, the borrower will be deemed to have made the certification concerning the necessity of the loan in good faith. On the other hand, if a borrower receives PPP loans in excess of $2 million,[4] the loans will be subject to compliance review by the SBA before the borrower is eligible for loan forgiveness. If the SBA, during its review, determines that the borrower lacked an adequate basis for making the certification regarding the necessity of the loan, the SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. However, if the borrower repays the loan after receiving notification from the SBA, the SBA will not pursue administrative enforcement or refer the matter to other agencies. In all cases, the newly-issued guidance clarifies that the SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.

[1] Specifically, penalties under 18 U.S.C. 1001 and 3471 (imprisonment of not more than five years and/or a fine of up to $250,000), 15 U.S.C. 645 (imprisonment of not more than two years and/or a fine of not more than $5,000) and 18 U.S.C. 1014 (imprisonment of not more than thirty years and/or a fine of not more than $1,000,000).

[2] See, FAQ #47 at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

[3] See, FAQ #46 at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

[4] The SBA can review other PPP loans if it deems the review to be appropriate—regardless of the amount.

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