SBA Extends PPP Loan Safe Harbor Repayment Date to May 18 and Provides More Guidance for Borrowers over $2 Million

The U.S. Treasury Department (Treasury) and Small Business Administration (SBA) continue to provide updated guidance on compliance with the Paycheck Protection Program (PPP) in the form of Frequently Asked Questions. Those FAQs can be found here and an Interim Final Rule can be found here. 

We have prepared a PPP Loan Bible with a Compilation of Critical Documents which can be found here.

While the PPP was intended to support small businesses and such businesses were not required to attest that they had exhausted all efforts to seek capital elsewhere before applying (as is required for a typical SBA loan), several public and purportedly well financed companies received PPP loans (potentially at the expense of others).

Therefore, Treasury and the SBA have expressed disapproval of companies that received a PPP loan, but enjoyed an otherwise healthy balance sheet or access to capital. Treasury and the SBA have encouraged PPP loan recipients to consider once again the CARES Act requirement that PPP applicants certify that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant," and require that borrowers make this certification taking into account "their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations." FAQ #31, in part below.

Further new guidelines have been issued:

• Maximum aggregate loan amount of all “corporate group” and commonly-owned entities: $20 million;
• Announced audits of loans over $2 million;
• Statement that firms cannot certify a legitimate economic need for the loan if they had access to capital or have otherwise robust balance sheets;
• Offer of “amnesty” for firms that previously indicated that they suffered economically and need the funds.  If these companies received loans over $2 million and can no longer certify that economic uncertainty made the loan request necessary, then they would be granted “amnesty” if they returned their PPP loan by the end of May 7. This deadline has now been extended to May 18, 2020.

FAQ #31 states, in part: All borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 (now May 18) will be deemed by SBA to have made the required certification in good faith.

FAQ #46 states, in part: …Any borrower that, together with its affiliates, 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….

Importantly, borrowers with loans greater than $2 million that do not satisfy the 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….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…

FAQ #47 states, in part: SBA is extending the repayment date for this safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor.

For advice on best practices to comply with the parameters of the CARES Act and subsequent guidance, contact the attorneys at Burke, Warren, MacKay & Serritella, P.C.