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May 14, 2020

On May 13, the Small Business Administration (SBA) issued additional guidance regarding the Paycheck Protection Program (PPP). Specifically, FAQ #46 addresses the following question: “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”
 
One of the requirements when submitting a PPP loan application is a self-certification by the applicant that the loan is necessary to support their ongoing operations in light of the current economic circumstances. Many borrowers called for further clarification on this point out of fear that they would later be judged as having made a false self-certification and fall under penalty.
 
Wednesday’s clarification describes a safe harbor for borrowers who, along with their affiliates, receive PPP loans of $2 million or less. In other words, those who receive PPP loans of $2 million and less will not have their self-certifications reviewed. The SBA clarifies the thinking behind the creation of this safe harbor, explaining that:
  1. Borrowers with loans of this size are unlikely to have access to other sources of liquidity during this difficult economic time (therefore their self-certification is very likely accurate).
  2. The creation of the safe harbor will dispel a lot of uncertainty that these smaller businesses had about accepting PPP loans, thereby helping the program to operate more smoothly.
  3. Discounting this set of loans from the review process will allow the SBA to better handle the large workload they have before them and focus their efforts on larger loans.
The SBA clarification also addressed what will happen if a borrower who receives more than $2 million is found to not have an adequate basis for their PPP loan, upon review. If this is the case, the borrower will need to return the balance of the loan. If they do so, the SBA will not “pursue administrative enforcement or referrals to other agencies.” 
 
This guidance was much anticipated to assist borrowers with FAQ #43, issued on May 5, 2020, which had extended the date for a safe harbor to return PPP loan proceeds by May 14, 2020 if the borrowers concluded they did not meet the economic uncertainty standard at the time of application.
 
The SBA has issued other FAQs in May, 2020:  FAQ #40 – #45 and can be found in the most recent SBA FAQ.
 
We anticipate additional guidance and clarification to be provided by the SBA around the timing, amounts, and eligibility of expenditures to qualify for loan forgiveness.  The IRS has issued recent guidance related to the deductibility of expenses forgiven under the PPP program, and Congress is considering further changes (See related article on IRS Notice 2020-32 on our website).  Please contact us for questions or if you need assistance.
If you have questions or wish to discuss these matters, please contact us.
Sincerely,

Abeles and Hoffman, P.C.