After 3 weeks of threats, the SBA has relaxed its position on borrowers who received PPP loans of less than $2 million, providing a complete safe-harbor for the “uncertainty/necessity” certification.
Borrowers with larger loans can also breathe easier; they will have a chance to repay upon the SBA’s request, before facing liability.
According to SBA FAQ #46, all companies that, together with affiliates, borrowed less than $2 million “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” Borrowers with loans of $2 million or more “may still have an adequate basis for making the good-faith certification, based on their individual circumstances in light of the certification and SBA guidance.”
One of the stated purposes of the safe harbor is to allow the SBA to focus its enforcement attention on larger loans. In spite of this heightened focus on larger loans, the SBA has nonetheless reduced a great deal of anxiety by providing companies that borrowed at least $2 million a future option to repay their loans without immediate criminal prosecution. The SBA had previously set a deadline of May 14 to repay without liability.
In the past few weeks, the SBA has come under criticism for creating a great deal of concern among small- and mid-sized businesses, by signaling that it will focus on a company’s liquidity, rather than on the “uncertainty” caused by Covid-19. That raised the question of: How much in liquid assets would make me ineligible? The SBA’s position seemingly contradicted the spirit of, if not the letter of, the CARES Act, which specifically waived consideration of whether the applicant had other sources to obtain a loan. Three borrowers filed a federal lawsuit on the topic.
The “uncertainty/necessity” certification was one of two major pieces of guidance that borrowers were awaiting. The second relates to forgiveness. The 8-week period of the earliest PPP loans will be expiring by the end of May, so the SBA is likely to provide parameters on forgiveness before then.
Please contact me at [email protected] with any PPP questions.