The Treasury Department has released an update to its FAQs on the Paycheck Protection Program on the morning of May 13, 2020 to address the good-faith certification issue.
The full text of the new FAQ is below. In summary, the new FAQ provides as follows:
All borrowers of loans with original principal amounts of less than $2,000,000 will be deemed to satisfy the good-faith certification requirement.
Borrowers of loans with greater amounts can still satisfy the requirement, but the SBA will review the individual circumstances.
If the SBA determines that a borrower did not have an adequate basis for making the good-faith certification, the SBA will notify the borrower, and if the borrower repays the loan, the SBA will not refer the matter for administrative enforcement or to other agencies.
The new FAQ is great news for borrowers of $2,000,000 or less. Borrowers of more than $2,000,000 are still subject to significant confusion over how the SBA will interpret the good-faith certification requirement (see our blog post here). The new FAQ did not provide any further information about how the SBA will interpret the requirement in its evaluations. We hope to receive further guidance in that regard and on other open issues such as loan forgiveness calculations.
There is at least some good news for borrowers of more than $2,000,000 in that the SBA will review their certifications, and if the SBA determines that the borrower lacked the basis to make a good-faith certification, the borrower will have an opportunity to repay the loan without the SBA referring the matter to other agencies such as the Department of Justice.
Full Text of New PPP FAQ issued 5/13/2020 on Good-Faith Certification Requirement
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.
Please contact Will or your HSB attorney with any questions or comments.
For additional resources on COVID-19, please access HSB’ s resource page.