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Another SBA Surprise – And It’s Mostly Good News

The SBA has updated its FAQ document today adding FAQ 46 that addresses the question that has been on everybody’s mind — how will borrowers’ certification of need in their PPP loan applications be evaluated?

What we learn from the FAQ is that the SBA has created a safe harbor for all PPP loans of less than $2 million. For such loans, the SBA has 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 has advised that it will focus its audit resources on larger loans.

While this does not mean the SBA will not examine PPP loans of $2m or less, it does mean it will not initially examine the economic necessity certification. The SBA restated that it may look at any loan (even those of $2 million or less) “as appropriate.” If the SBA determines in the course of its review of a loan for its compliance with the program requirements 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 inform the lender the loan is not eligible for forgiveness. If the borrower repays the loan after receiving notification from SBA, 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.

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