SBA Issues Guidance on Good-Faith Certification of Need for PPP Funds

May 13, 2020

The SBA issued additional guidance today regarding PPP borrower certification of necessity of loan. Previously, the SBA provided a safe harbor period expiring tomorrow, May 14 in which borrowers could repay PPP funds if they could not, in good faith, certify that economic uncertainty make the PPP loan necessary to support the ongoing operations of the Applicant. The SBA now advises that borrowers receiving LESS THAN $2 MILLION in PPP funds will be deemed to have made the required certification concerning the necessity of the loan request. (See SBA FAQ #46 available at https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf.)

If you are unable to certify in good faith that your organization finds the PPP loan necessary to support its ongoing operations given current economic uncertainty, you should return the funds to your lender no later than THURSDAY, MAY 14, 2020, so you may benefit from the safe harbor pay-back and avoid any penalties or adverse findings of false statements or certifications.

All borrowers, especially those receiving in excess of $2 million in PPP funds, are encouraged to document their need for the funds with financial modeling and projections before the end of the safe harbor period in order to preserve sufficient evidence in the event of an audit of borrower’s application for or use of PPP funds.  Such documentation could include internal emails, advice from professional advisors such as your accountant, description of affected contracts or opportunities that are negatively impacted by COVID-19, along with explanations as to why alternative sources of liquidity are not available or sufficient.

It is important to note that the SBA has previously advised that all recipients of $2 million or more in PPP funds, along with other loans at SBA’s discretion, will be subject to audit.

For more information, please view our CARES Act Paycheck Protection Program Use of Funds and Forgiveness FAQ and contact Chad Walker or your Bose McKinney & Evans LLP attorney.