On April 23, the Small Business Administration (SBA) issued a warning that businesses with substantial access to liquidity may not qualify for Paycheck Protection Program (PPP) loans. Concerned that their loans would be deemed inappropriate, some larger companies have returned their PPP funds. Many small businesses were left wondering if they should return PPP loan funds because of unclear certification requirements.
What is good faith certification?
When submitting a PPP application, all borrowers must certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations.”
On May 13, the SBA announced guidance regarding the good faith certification for PPP loans. The guidance states that for borrowers with loans of less than $2 million, the SBA will deem the borrower “to have made the required certification concerning the necessity of the loan request in good faith.” According to the SBA, borrowers with loans below the $2 million threshold are less likely to have access to adequate sources of liquidity in the current economic environment than borrowers who obtained larger loans.
The SBA said this will promote economic certainty for PPP borrowers with limited resources as they work to retain and rehire employees. The $2 million threshold will also help the SBA conserve its resources and focus on reviewing larger loans.
What about loans over $2m?
For loans of $2 million or more, the borrower may still need to justify its good faith certification of necessity if its loan is reviewed by the SBA.
If the SBA determines that a borrower did not have an adequate basis for its good faith certification of the necessity of its loan, the SBA will seek repayment of the outstanding PPP loan balance and the borrower will not be eligible for loan forgiveness. The SBA will not pursue administrative enforcement or referrals to other agencies if the borrower repays the loan after receiving notification from the SBA.