212-832-2797



SBD Chalkboard


View All Articles

PPP Update

Benjamin E. Cain
May 14, 2020

          Update: On May 13, 2020, the SBA released new guidance, via FAQ #46, on how it will evaluate a borrower’s good-faith certification regarding the economic necessity of its loan request. The SBA, in consultation with the U.S. Department of the Treasury, determined that any borrower, together with its affiliates, which receives a PPP loan 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.” See SBA PPP FAQ #46.

          The SBA stated in its guidance that it is instituting this “safe harbor” for borrowers with an original principal amount below $2 million since “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.” See SBA PPP FAQ #46.

          In addition, pursuant to FAQ #47, also released on May 13, 2020, the SBA extended the safe harbor date for borrowers to return PPP loans from May 14, 2020 to May 18, 2020. Borrowers who applied for PPP loans prior to April 24, 2020, who return such loans by May 18, 2020, will be considered to have made the economic necessity certification in good faith. See SBA PPP FAQ #47.

          FAQ #47 appears to be geared more towards borrowers who receive loans in excess of $2 million, given SBA’s prior stated commitment to focusing its auditing resources on such borrowers, an objective it reiterated in FAQ #46.

         The latter notwithstanding, while we think that the new guidance makes it unlikely that the SBA will audit borrowers which receive PPP loans with an original principal amount of less than $2 million, it is still possible that the SBA could audit such borrowers in scenarios where, for example, the SBA is made of aware of information via a whistleblower’s complaint that a borrower’s particular loan was not economically necessary.

        As such, we still recommend that our clients who receive PPP loans, even with an original principal amount of less than $2 million, reassess by May 18, 2020 their respective financial circumstances as they bear on the economic necessity of the loan, as the SBA stated in its guidance that if it “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.” See SBA PPP FAQ #46.