SBA and Paycheck Protection Program update

May 13, 2020 – Earlier today, the Small Business Administration (SBA) provided additional guidance regarding the implementation of the Paycheck Protection Program (PPP), established by section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). SBA updated its Frequently Asked Question Page (FAQ # 46).

This illustration, created at the Centers for Disease Control and Prevention (CDC), reveals ultrastructural morphology exhibited by coronaviruses. (Alissa Eckert, MS; Dan Higgins, MAMS / CDC)

FAQ # 26 announces a safe harbor for PPP Borrowers with loans for less than $2 Million. The safe harbor provides that any borrower, including affiliates, who receives a PPP loan 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.”

SBA recognized that the below $2 Million borrowers generally were less likely to have “access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.” The safe harbor would also remove economic uncertainty to such borrowers. SBA can also focus its audit resources on borrowers with loans great than $2 Million.

SBA previously required all borrowers to provide good faith certifications regarding the necessity of their loan requests. The certifications provide that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers who cannot meet this requirement are not eligible for loan forgiveness.

The safe harbor addresses concerns of small business owners about making good faith certifications while simultaneously maintaining reserves to operate their businesses. Borrowers should be aware of the May 14 deadline for PPP borrowers who had access to other sources of capital to return funds. SBA will not subject applicable borrowers who meet the deadline to administrative enforcement or referral to other agencies, however.

We hope you are staying well and safe. Feel free to contact us if you would like any further guidance or clarification, for this or any other legal matter.