COVID-19 Update: New Critical Guidance on PPP Loan Forgiveness

Spilman Thomas & Battle, PLLC
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Spilman Thomas & Battle, PLLC

On May 13, 2020, the Small Business Administration ("SBA") issued FAQ # 46 dealing with its plan to review certain PPP loans (in response to COVID-19) to determine if the “necessity” certification was made in good faith by the borrower at the time of application.

The good news for small borrowers is that the SBA announced a new safe harbor for them: Any borrower that, with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made in good faith the certification about the necessity of the loan request.

The FAQ affirms that borrowers of over $2 million may still meet the good faith test based on their individual circumstances “in light of the language of the certification and SBA guidance.” Such borrowers who elect not to take advantage of the safe harbor announced on April 23 (FAQ # 31) by paying back their loans by May 14, 2020, may take comfort from that statement. Also of help to them (and their lenders) is SBA’s explanation of the implications of an adverse determination on the certification question. The FAQ states if SBA determines a borrower lacked an adequate basis for making the certification about the necessity of the loan request:

  • SBA will seek repayment of the outstanding PPP loan balance
  • SBA will inform the lender that the borrower is not eligible for loan forgiveness
  • If the borrower repays the loan after notification from SBA, no administrative enforcement or referrals to other agencies will be pursued by SBA regarding the certification
  • The adverse determination will not affect SBA’s loan guarantee

FAQ # 39, issued April 29, states that additional guidance on how SBA will implement reviewing “all loans in excess of $2 million” will be forthcoming. FAQ # 46 does not address the review process.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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