The Treasury Department’s new Paycheck Protection Program guidance offers the kind of information we have been seeking to provide many employers with additional clarity on how to proceed with their loans. Importantly, the Department has opted to provide a safe harbor provision for firms that self-certified their need for loans that totaled less than $2 million. In addition, the new guidance provides a mechanism to allow firms that received loans of $2 million or more and are later found to have not met the Department’s need-standard to repay, seemingly without penalty, those loans.
While the new guidance is helpful, it does leave several important questions unanswered, including about the timing and condition of those possible loan repayments, as well as what criteria the SBA will use to determine if a loan should be repaid. AGC will continue to push Treasury officials to answer those questions as quickly as possible. That being said, today’s new guidance will clearly help save many jobs.
Here is the guidance:
- 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,20 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.21
Click HERE for the full list of questions and answers from the Treasury Department on PPP loans.