When borrowers applied for a loan through the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), they were required to make a certification in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” during the application process. This triggered a great amount of uncertainty for PPP loan borrowers and anxiety around potential forms of enforcement.

As a result, the SBA released guidance on May 13, 2020, clarifying how they will review borrowers’ good-faith certifications for loan requests through the PPP.

In FAQ #46, the SBA determined that PPP loan borrowers with an original principal amount of less than $2 million will receive an automatic safe harbor, as these borrowers “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” The organization cited this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.

Borrowers with loans above $2 million will be subject to review by the SBA for compliance with PPP requirements. If the SBA determines a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request during its review, the organization will seek repayment of the outstanding PPP loan balance and inform the lender the borrower is not eligible for loan forgiveness.

For more information about the PPP, contact Doeren Mayhew today.