The Safe Harbor for PPP Loans: "Good Faith" Guidance from the SBA
On May 13, 2020, the Small Business Administration (“SBA”) issued its most current guidance on the “safe harbor” rules related to the return of loaned monies under the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES”). The Department of Treasury has focused on the certification that each applicant made, in “good faith,” in their applications: that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” If the certification was not correct, the SBA has given borrowers a chance to return the funds, by May 14, 2020. The SBA’s guidance helps define the issue of “good faith.”
The guidance is a part of the PPP “Frequently Asked Questions” or “FAQs” which have been expanded over time. The most recent publication, linked here, contains Question 46: “How will SBA review borrowers; required good faith certification concerning the necessity of their loan request?" In response, the SBA provides one bright line, that loans of less than $2 million dollars will be “deemed” to have been sought in “good faith.” In this announcement, the SBA has assumed that borrowers at this lower loan level were “less likely to have had access to adequate sources of loans.” The SBA also noted that it wants to focus its resources on those obtaining larger loans, and the agency wanted to provide more economic certainty to borrowers working to retain and rehire employees.
Those above the $2 million level will be treated on a case-by-case basis. If the individual facts support the higher level loan under PPP requirements, that is, that there was a business necessity for the loan on the date of the application, then the loan will still pass muster, and, thus, forgiveness of the loan under PPP terms would still be possible. Otherwise, loan forgiveness may not be possible.
We at KRCL are following all developments in this area and have been providing legal guidance to companies working through various COVID-19 related issues (whether in tax, transactional, or employment law areas). If we can assist you, please call anyone on the KRCL CARES Task Force.
