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FAQ 46 – The CARES Act Paycheck Protection Program

By Jason Shultz, CPA, HoganTaylor Assurance Partner

On May 13, 2020, the Treasury Department provided additional guidance regarding how the SBA will review borrowers’ good faith certifications with respect to the Paycheck Protection Program.   While the guidance was not precise surrounding exactly how the SBA will determine if the certification was in good faith, it did provide two critical details.

  1. Safe harbor for smaller borrowers. Borrowers who received less than $2 million in PPP loans will be deemed to have made their certification concerning the necessity of the loan request in good faith.  This safe harbor only applies if the original principal to the borrower and its affiliates is less than $2 million.
  2. Guidance for larger borrowers. All loans greater than $2 million will be subject to review.  This review will include an analysis of the borrower’s individual circumstances, language in the certification and SBA guidance.  If the SBA determines the borrower lacked adequate basis for the certification, the SBA will seek repayment of the outstanding PPP loan balance.  If the borrower repays the loan after receiving notification from the SBA, the SBA will not pursue administrative enforcement.

Recall that May 14, 2020 was the deadline to repay a PPP loan by the safe harbor deadline, which was introduced in FAQ #43. The deadline has been moved to May 18, 2020 (per FAQ #47, posted May 13, 2020) to give borrowers an opportunity to review and consider FAQ #46.

We remind all PPP borrowers that although most of the recent guidance from the SBA has been focused on the “[c]urrent economic uncertainty” certification, the PPP application contained fifteen additional certifications. Furthermore, FAQ #46 reiterates 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” (emphasis added).  Therefore, loans of less than $2 million are still subject to review by the SBA and borrowers should be certain they are comfortable with all of the certifications made as the safe harbor announced in FAQ #46 will not apply to those certifications.

The full text of FAQ #46 is below (emphasis added):

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 “[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.

Read the full FAQ by visiting home.treasury.gov