Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Small Business Administration (SBA) is tasked with administering the Paycheck Protection Program (PPP), the loan program intended to allow employers to continue to pay their employees and assist with certain other expenses resulting from the COVID-19 pandemic.

As the PPP went into immediate effect without the standard comment period, the SBA continues to issue additional guidance in the form of Frequently Asked Questions (FAQs) and responses. The most recently updated FAQs, current as of May 13, 2020, are available here.

In the most recently updated FAQs, the SBA provided the following guidance regarding a borrower’s good faith certification of necessity of a loan:

The SBA stated that any borrower that, together with its affiliates, received PPP loans 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. The SBA’s determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.

Borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. The SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by the SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form.

If the SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, the SBA will seek repayment of the outstanding PPP loan balance and will inform 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 enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. The SBA’s determination concerning the certification regarding the necessity of the loan request will not affect the SBA’s loan guarantee.

NOTE: The new FAQs did not provide any guidance for borrowers who received PPP loans with an original principal amount of more than $2 million as to what steps they need to take in order to determine if the loan is necessary for their ongoing operations.