Additional SBA Guidance on PPP Applicant Need Certification Issued Including Safe Harbor for Certain Borrowers

May 13, 2020

On May 13, 2020, the Small Business Administration (SBA), in consultation with the Department of Treasury, issued additional guidance pursuant to its Paycheck Protection Program (PPP) Frequently Asked Questions that in connection with the “need” certification borrowers make in their PPP application (i) provides a safe harbor for loans that are less than $2 million and (ii) offers additional information with respect to the SBA’s review of loans in excess of $2 million.

Previously, the SBA noted to borrowers that the PPP loan application includes a certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The SBA stated that as part of this certification, which is to be made in good faith, borrowers are to take “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.” As part of the SBA’s certification guidance, the SBA offered borrowers an opportunity to return loans without additional consequence by May 14. The SBA also stated that it planned to review all loans in excess of $2 million in connection with a borrower’s loan forgiveness application.

Pursuant to FAQ #46, the SBA creates a certification safe harbor for “any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million.” In support of the safe harbor, the SBA notes that these borrowers are “generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.” 

FAQ #46 goes on to state that loans in excess of $2 million will be subject to SBA review for program compliance, including the need certification. While the SBA does not provide further guidance on how a borrower is to assess and demonstrate need, the FAQ indicates that in the event the SBA determines that “a borrower lacked an adequate basis” for the needs certification the borrower will not be eligible for loan forgiveness. Upon such determination, provided the borrower repays the loan, then the SBA will not pursue enforcement action or refer the matter to other agencies. The SBA does not indicate whether the loan will need to be repaid immediately or whether it will set out repayment terms for the borrower.

In connection with the need certification, borrowers are required to have undertaken the good faith determination and should document how it undertook this determination. While this analysis will be dependent on the circumstances of the particular borrower, factors to consider include, but are not limited to: (i) uncertainties and changes with respect to revenues or revenue forecasts; (ii) existing indebtedness and access to additional liquidity; and (iii) businesses ability to retain employees without the loan.

Since the review will occur in connection with a review of borrower’s application for loan forgiveness, borrowers are awaiting guidance from the SBA on how the forgiveness process is to be undertaken. We will provide a further update upon release of such guidance. 

For more information on this or other matters, please contact:

Andrew C. Gold at +1 212 592 1459 or [email protected]
Eric A. Stabler at +1 212 592 5982 or [email protected]
Patrick J. O’Sullivan, Jr. at +1 212 592 1503 or [email protected]

© 2020 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.