The Treasury and the Small Business Administration (SBA) today updated its set of Frequently Asked Questions (FAQs) with respect to the Paycheck Protection Program (PPP) established under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in order to provide additional guidance on the borrowers’ required good-faith “economic certification” concerning the necessity of their loan request. Numerous businesses have been evaluating whether to repay PPP loans in light of recent guidance on the “economic certification,” and the indication that borrowers should take into account the availability of other sources of liquidity in assessing if their certification was made in good faith.
Specifically, under new FAQ 46, the SBA will deem all loans with original amounts under $2 million to be in good faith (i.e., the SBA will not challenge such loans). While this statement does not have the force and effect of law, it is a statement of SBA enforcement policy. Thus, borrowers on such loans would, in all likelihood, not face any liability risks resulting from U.S. government actions on such loans.
For borrowers with PPP loans over $2 million, the SBA also has effectively created a new safe harbor beyond the previously established May 14 safe harbor date.1 Specifically, if the SBA determines during a later review of such a larger loan that the certification lacked an adequate basis and the borrower subsequently repays the loan, then the SBA will “not pursue administrative enforcement or referrals to other agencies …” but will inform the borrower that it is not eligible for loan forgiveness. Significantly, this means that the SBA will not pursue civil or criminal remedies against such larger PPP borrowers.
Of course, it should also be recognized that third party whistleblower could still bring a private lawsuit under the False Claims Act.2
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1 For more information on May 14 “safe harbor”: Treasury and SBA issue new guidance on Paycheck Protection Program and extend the “safe harbor” repayment date to May 14th
2 For more information on potential False Claim Act litigation, see Eversheds Sutherland’s Legal Alert: CARES Act loans and related programs come with increased oversight and risk of False Claims Act prosecution: Borrowers beware.
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