On Wednesday May 13, 2020 the Small Business Administration (SBA) released two updates to their Paycheck Protection Program (PPP Loan) Frequently Asked Questions (FAQ). In the first update, the SBA attempted to provide clarification related to the good-faith certification organizations make when applying for the PPP Loan. The SBA wrote that “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.” While this could be interpreted as reason for those with loans of less than $2 million to put this issue to rest, it is important to remember that the FAQ is non-authoritative and organizations may still want to create a loan justification memo documenting its condition and outlook at the time of application for the PPP Loan.

The FAQ goes on to say that “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.” However, loans in excess of $2 million will be subject to review by the SBA for compliance with the program requirements. For those organizations with loans of more $2 million, this question and answer does not provide additional clarification as to what the SBA will consider acceptable “economic uncertainty [making] this loan request necessary to support the ongoing operations of the Applicant.” Until more clarity is provided on this aspect, borrowers with loans that do not qualify for the safe harbor will want to prepare their records for a future SBA review. RubinBrown published an earlier E-Focus on this topic: COVID-19: PPP Loans and the Factor of Economic Uncertainty.

The SBA, in connection with the Department of Treasury, announced that it plans on reviewing the loans at the time the organization’s loan is submitted for forgiveness. If an organization’s loan is reviewed by the SBA and determined that the organization “lacked an adequate basis for the required certification concerning the necessity of the loan request” the “SBA will seek repayment of the outstanding PPP Loan balance and will inform the lender that the borrower is not eligible for loan forgiveness.” For those who are able to pay back the loan, the SBA will not pursue administrative enforcement or referrals to other agencies.

The second update to the FAQ provided an extension for borrowers to return funds previously borrowed from May 14, 2020 to May 18, 2020. If an organization elects to return the funds previously borrowed or is required by the SBA to return the funds, the organization may at that point be eligible for the employee retention credits offered within the CARES Act which is explained in the following E-Focus article: COVID-19: Employee Retention Credit FAQ

While this publication does provide insight into what size of loans the SBA will focus its review of the good-faith certification of need upon, the question of what qualifies as acceptable economic uncertainty for organization remains unanswered. If you have additional questions, please reach out to your RubinBrown Contact or visit our contact page.

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