The SBA stated that it will focus its “finite audit resources” on loans larger than
$2 million.
On May 13, 2020, the Treasury Department and Small Business Administration (SBA) released Questions 46 and 47 of the FAQ sheet, which addresses how the SBA will review the need certification required for Paycheck Protection Program (PPP) loans and extend the safe harbor deadline to May 18, 2020, for borrowers to return their PPP loan in full and satisfy the certification regarding the necessity of the loan.
Question 46 explains that the SBA has determined that any borrower, together with its affiliates, that received a PPP loan with an original principal amount of less than $2 million will be deemed to have made the certification concerning the necessity of the PPP loan in good faith. Accordingly, PPP loan borrowers with loan amounts of less than $2 million will not have to undergo audits based on the certification of the necessity of the loan. (Keep in mind that a borrower will still have to be eligible for the PPP loan by satisfying the size standard of 500 or fewer employees or the SBA NAICS size standard, which must include employees and receipts of affiliates. Recently, the SBA clarified in Question 44 that this also includes non-US employees of a borrower’s affiliates. 121.301(f)(6).)
The SBA stated that it will focus its “finite audit resources” on loans larger than $2 million, where there may be more uncertainty on whether borrowers fulfilled the loan necessity certification.
The SBA also provided further details on the satisfaction of the necessity certification for borrowers of PPP loans in excess of $2 million. The SBA noted that borrowers receiving loans of more than $2 million may still have an adequate basis for making the required certification of necessity based on the borrower’s “individual circumstances.” However, pursuant to prior rules and regulations released by the SBA, all PPP loans of more than $2 million will be audited.
It appears that the SBA may seek limited actions against a borrower if it determines they lacked an adequate basis for the certification of necessity. The SBA stated that if it makes such a determination, the SBA will then 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 returns the PPP loan upon receiving such notification, the SBA indicated that it will not pursue “administrative enforcement or referrals to other agencies.” This could limit legal exposure of the borrower. However, it is not clear how this statement affects enforcement of laws, including the False Claims Act, that a borrower is subject to per the PPP loan application.
In Question 47, the SBA provided an extension of the safe harbor deadline for returning a PPP loan to May 18, 2020, in order to permit borrowers additional time to review Question 46 and the new details regarding the necessity certification. The previous safe harbor deadline was May 14, 2020. The SBA noted that borrowers do not need to apply for this extension.
Accordingly, a PPP loan borrower may return its loan in full by May 18, 2020, and be deemed to have satisfied the certification regarding the necessity of the loan as set forth in the borrower application and loan documentation.
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