SBA Issues Updates Regarding PPP Loans, Safe Harbor Extensions

Published May 15, 2020

On May 13, 2020, the Small Business Administration (SBA) updated its Frequently Asked Questions (FAQ) Document with two new FAQ #46 and #47. FAQ #46 provides safe harbor for PPP loans below $2 million and some relief for loans that lack adequate basis:

    1. 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 “[c]urrent 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. Importantly, borrowers with loans greater than $2 million that do not satisfy this 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. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. 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. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.

FAQ #47 extends the safe harbor for the return of PPP funds for borrowers that may not be able to make the required good-faith certification:

    1. Question: An SBA interim final rule posted on May 8, 2020 provided that any borrower who applied for a PPP loan and repays the loan in full by May 14, 2020 will be deemed by SBA to have made the required certification concerning the necessity of the loan request in good faith. Is it possible for a borrower to obtain an extension of the May 14, 2020 repayment date? 

Answer: Yes, 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.

In addition to updating its FAQ on May 13, 2020, the SBA also released a new interim final rule regarding loan increases for partnerships or seasonal employers who had filed for a PPP loan prior to the guidance that was released on April 14, which allowed partnerships to “report self-employment income of general active partners” as a “payroll cost up to $100,000 annualized on a PPP loan application filed by or on behalf of the partnership” as well as the guidance released on April 28 that established an alternative criterion for calculating the maximum PPP loan amount for seasonal employers. The new interim final rule allows for lenders to increase the PPP loan amounts issued before the updated guidance, even if the loan has been fully disbursed, so long as the lender’s first SBA Form 1502 report to the SBA that includes that loan has not been submitted. 

This continues to be a fast-evolving situation, and we encourage you to seek advice from legal counsel as needed.

We recognize that these are challenging times for many organizations. If we can support you and your organization in any way, especially during these coming weeks and months, please contact us.

Johnson Lambert
Johnson Lambert | Author