In an effort to provide businesses desperately needed help during the COVID-19 crisis, the Small Business Administration (SBA) is administering loans through the Paycheck Protection Program. To streamline the process, qualification certification has been reduced to good-faith certification, but that’s raised several questions. Key among them, exactly how will SBA review borrower’s required good-faith certifications? Now we have some answers.
When you apply for a PPP loan you must certify in good-faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA and the Department of the Treasury have clarified that the following borrowers qualify for safe harbor with their PPP loans.
If a borrower, together with its affiliates, has a PPP loan of less than $2 million, the SBA will deem that the borrower has met the required criteria and accept the borrower’s good-faith certification. At loans below the $2 million threshold, , good-faith is extended because a borrower is less likely to have adequate liquidity during this crisis than borrowers who are applying for larger loans. The hope is this will help PPP borrowers with limited funding retain and rehire their employees and will enable SBA to focus its limited resources on reviewing larger loans.
Borrowers with loans of more than $2 million that don’t qualify for the good-faith certification safe harbor may still have an adequate basis for making the good-faith certification. The individual circumstances of each borrower with a loan of more than $2 million, will be subject to review by SBA for program compliance found in the PPP Interim Final Rules and in the Borrower Application Form.
If you receive a loan based on good-faith certification and the SBA reviews it and determines you don’t qualify, you’ll need to repay the outstanding PPP loan balance. The SBA will also notify your lender you are not eligible for loan forgiveness. If you repay the loan after receiving notification, the SBA won’t pursue administrative enforcement or referrals to other agencies. SBA’s determination of the necessity of the loan request does not affect SBA’s loan guarantee.