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Hold the Press – Last Minute Safe Harbor Issued for PPP Loans Under $2 million

The SBA and Treasury issued guidance in late April reaffirming that companies must certify that current economic uncertainty made the loan request necessary to support ongoing operations. They also noted that borrowers who applied for a Paycheck Protection Program (“PPP”) loan prior to the issuance of this guidance who repay the loan in full by May 14, 2020 (extended from May 7, 2020) will be deemed by the SBA to have made the required certification in good faith, and can return the money without penalty.

Today new guidance by the SBA and Treasury issued a safe harbor for borrowers receiving PPP loans with an original principal amount of less than $2 million. Those borrowers under this threshold will be deemed to have made the required certification regarding the necessity of the loan in good faith. This comes as an update to the FAQs under #46. The threshold of less than $2 million was chosen since the SBA believes that borrowers with loans under this amount are less likely to have alternate sources of capital.

As mentioned previously by Treasury Secretary Mnuchin, all PPP loans greater than $2 million will be subject to review by the SBA for compliance. If the SBA finds that a borrower did not have adequate basis to take the loan, the SBA will seek repayment of the outstanding PPP loan principle and will inform the lender that the borrower is not eligible for loan forgiveness. If the loan is repaid after receiving notification from the SBA, the 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. It will also not affect the SBA’s loan guarantee. This guidance comes just one day before the May 14th deadline for PPP borrowers to return funds. In light of this timing, the SBA is extending the repayment date for this safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46.