New SBA Guidance on PPP Loans and the Necessity Certification: Safe Harbor for Loans Under $2 Million and SBA Remedies for Certain Adverse Determinations

Against a backdrop of considerable anxiety in the business community regarding many aspects of the Paycheck Protection Program (“PPP”), the U.S. Small Business Administration (“SBA”) today issued its promised guidance on how it will review a borrower’s good-faith certification of economic need in connection with a PPP loan. This action follows last week’s extension of a PPP loan safe harbor deadline from May 7, 2020 to May 14, 2020, whereby certain borrowers who repay their PPP loans in full shall be deemed to have made the required certification of economic need in good faith.

Important takeaways from today’s SBA guidance include the following:

• The SBA has established a new safe harbor applicable to any borrower, that, together with its affiliates, has received PPP loans in the original principal amount of less than $2 million. Specifically, all such borrowers shall be deemed to have made the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” in good faith (the “Necessity Certification”).
• The SBA’s stated reasons for the new smaller loan safe harbor are that these borrowers, in general, are less likely to have access to adequate sources of liquidity, that this will help provide economic certainty for borrowers as they try to maintain their workforce and that this will help the SBA focus its review and compliance efforts on larger PPP loans.
• The SBA reiterated that all PPP loans greater than $2 million, “and other PPP loans as appropriate,” will be subject to an SBA compliance review. However, the SBA goes on to say that, if in the course of its review, the SBA finds that there was not an adequate basis for the borrower’s Necessity Certification, then the SBA will seek repayment of the loan and notify the lender that the loan does not qualify for loan forgiveness. If the borrower then repays the loan, the SBA “will not pursue administrative enforcement or referrals to other agencies based on its determination” regarding the Necessity Certification.
• Today’s guidance neither mentions nor extends the current May 14, 2020 safe harbor deadline for certain borrowers to pay off their PPP loans, and, thereby, be deemed to have made the Necessity Certification in good faith.