Additional advice from the ASB on certification of the need for PPP loans | Weintraub Tobin
Small Business Administration (SBA) advice released on May 13, 2020 clarifies the “necessity” certification that borrowers were required to present when applying for Paycheck Protection Program (PPP) loans. According to these guidelines, borrowers who have received PPP loans of less than $ 2 million will be deemed to have made the necessity certification in good faith. For borrowers with loans greater than $ 2 million, if the SBA notifies the borrower that the SBA has determined that the borrower does not have an adequate basis for certification of necessity, the borrower will be able to avoid execution measures by repaying the loan.
Each PPP loan application requires the borrower to certify that “the current economic uncertainty makes this loan request necessary to support the applicant’s ongoing operations”. In April 2020, Treasury Secretary Steven Mnuchin and the SBA announced that the SBA would audit certain PPP loans, including all loans over $ 2 million. These audits will include a review to determine whether the aforementioned necessity certification was made in good faith. Our previous article on this subject is available here.
Borrowers are likely to find the following two parts of the May 13 guidelines particularly important:
Safe Harbor for : “Any borrower who, together with its affiliates, has received PPP loans with an initial amount of less than $ 2 million in principal will be deemed to have made the required certification regarding the necessity of the good faith loan application.”
Possibility of notice and remedy for other borrowers: “The SBA has previously stated that all PPP loans over $ 2 million, and other PPP loans, if applicable, will be subject to review by the SBA to verify their compliance with the program requirements set out in the rules. PPP Interim Finals and in the borrower’s application form. If the SBA determines during its review that a borrower did not have an adequate basis for the required certification regarding the necessity of the loan application, the SBA will request repayment of the outstanding PPP loan balance and notify the lender. that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from the SBA, the SBA will not pursue administrative execution or referrals to other agencies based on its determination with respect to the certification regarding the need for the loan. loan application. “
As certification of necessity is rather subjective, many PPP borrowers were rightly concerned about a possible challenge by the SBA. Borrowers with loans of less than $ 2 million should be reassured by this new direction. PPP borrowers with loans of $ 2 million or more can avoid enforcement actions by repaying the loans in case of verification. However, since the funds will likely be spent before an audit, larger borrowers should always consider the option of verifying whether the loans were “needed” and factoring this into their spending plans. These borrowers would also be well advised to document their business’ liquidity needs and the impact of Covid-19 on their industries in general. As a final note, borrowers should be advised that the ASB’s May 13 guidelines are not binding on other federal agencies.