On May 13, 2020, the Small Business Administration (SBA) issued additional guidance regarding the May 14th safe harbor deadline date for businesses that qualified for the Payroll Protection Program (PPP) loan. The new guidance clarifies questions PPP borrowers may have given the ongoing uncertainty and economic challenges arising from the COVID-19 pandemic. Here is what you need to know about FAQ #46.
PPP Loans Under $2 Million
Borrowers who submit PPP applications are required to certify in good faith that "current economic uncertainty makes the loan request necessary to support the ongoing operations of the loan applicant.”
Borrowers who were approved for and received loans under $2 million are "deemed to meet the safe harbor." Borrowers in this category aren’t likely to have access to the same sources of liquidity as borrowers who received larger payments.
According to the SBA, this will create economic certainty so that borrowers can keep and rehire employees. Although borrowers must still meet the certification requirement, they will automatically qualify for the safe harbor.
PPP Loans Exceeding $2 Million
Borrowers who don’t satisfy the safe harbor requirements still have the opportunity to meet the required good faith certification depending on their individual circumstances. In the past, the SBA said all PPP loans over $2 million are subject to review under the requirements set forth in the PPP Interim Final Rules, as well as the borrower's application form.
During the review process, the SBA may determine that a borrower doesn’t have an adequate basis necessary for the required certification of the loan request. In this case, the SBA can request repayment of the outstanding PPP loan balance. The SBA will also contact the lender to inform them that the borrower is ineligible for loan forgiveness.
If the borrower repays the loan after they have been notified by the SBA, then the agency won’t pursue administrative enforcement or referrals to other agencies.
What Does This All Mean for Borrowers?
If you are a borrower who took out a larger loan, then you should closely monitor the current economic climate to determine whether the loan is necessary to keep your businesses operating. You should also prepare for the SBA to review your circumstances.
If you are not sure about keeping the PPP loan, know that civil and criminal penalties will not apply, as long as you requested the loan in good faith. Although this gives you flexibility, you should still consult with an experienced business law attorney to discuss all of your options under the law.
To schedule a case consultation with Mathur Law Offices, please give us a call today at (888) 867-5191.