Good News for PPP Loans Under $2 Million

On Wednesday, May 13, the SBA issued additional guidance extending an automatic safe harbor to borrowers with PPP loans less than $2 million. These borrowers are deemed to have made the required certification in good faith. This bright-line test is a relief for many who applied for loans and had concerns that some future SBA reviewer might question their certification.  Here is a portion of the text of the new guidance:

46. 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 “current 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, 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.

In addition, the SBA reiterated that all PPP loans in excess of $2 million, and possibly some under $2 million, will be subject to review by the SBA for compliance with program requirements.  Borrowers with loans greater than $2 million may have still made the loan request and related certification in good faith, based on the individual facts and circumstances, even if they are not eligible for the safe-harbor described above.  If the SBA concludes that the borrower lacked adequate basis for making the certification, the SBA will seek repayment of the PPP loan.

As of today (May 14), we still await guidance from the SBA on a number of issues. Many businesses are entering week 5 of the 8 week forgiveness period without clear answers. We are continuing to monitor developments and will host another webinar and provide resources when appropriate.

At this time, we recommend preparing a preliminary forgiveness projection. A template is available on our website. Also, use this time to secure payroll records and other expense documentation which will be required for forgiveness.

We are available to answer questions and assist with projections. We are offering comprehensive services to help with the loans and forgiveness calculations. If you are interested in assistance, please let us know.