On May 13th the SBA and the Treasury Department released additional guidance creating a Safe Harbor for the good-faith certification concerning the necessity of the loan request.
When submitting a PPP application, all borrowers had to certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The level of uncertainty and necessity needed to qualify for the loan is extremely vague. This vagueness, coupled with the ambiguity surrounding how the treasury department was going to enforce this requirement created confusion among loan applicants on whether or not they should keep or pay back the PPP loan proceeds.
The SBA and the Department of the Treasury Safe Harbor rules provide a bright-line test and create clarity for a majority of PPP loan recipients. The bright-line test states: “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.”
If you received a PPP loan for less than $2 million you will have fulfilled the good faith certification that the loan was necessary. If you received a PPP loan in excess of $2 million your loan will be subject to an audit by the SBA and you will need to prove the loan was necessary to support continuing operations. If the SBA determines your loan was not necessary you will have to repay it. As long as the loan is repaid neither the SBA nor any other agency will not take any further action against you with respect to the necessary certification.
Please call us with questions, especially if you have received a loan in excess of $2 million.