SBA Addresses Good-Faith Certifications Regarding PPP Loans

May 13, 2020

By Richard Shapiro

In Frequently Asked Question 46 released on May 13, the Small Business Administration (“SBA”), in conjunction with the Department of the Treasury, has changed its review protocol and announced that any borrower, together with its affiliates, that has received Paycheck Protection Program (“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.   

As required by the CARES Act and the PPP loan 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 previously had stated that all PPP loans in excess of $2 million, “in addition to other loans as appropriate,” would 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.  That has caused significant concern among small borrowers, many of which chose to repay the loan by SBA’s May 7, 2020 deadline (now May 14, 2020).  

According to SBA, it has determined that borrowers with loans below the $2 million 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.  Further, this $2 million threshold 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. 

Loans In Excess of $2 Million

In terms of its new review process, SBA makes the following significant points:

  • Borrowers with loans greater than $2 million 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.
  • 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.
  • Importantly, if the borrower repays the loan after receiving determination 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.
About Richard J. Shapiro

Richard Shapiro, Tax Director and member of EisnerAmper Financial Services Group, has over 35 years' experience in federal income taxation, including the taxation of financial instruments and transactions, both domestic and international.