SBA Issues New Guidance on PPP “Safe Harbor” for Loans Less Than $2 Million

Sarah Longson
Sarah Longson

On April 23, 2020, following the disclosure that well-heeled companies like Shake Shack, Ruth’s Chris Steakhouses, and the Los Angeles Lakers had applied for, and received, large PPP loans,  the SBA issued guidance providing that any PPP Borrower, and particularly large borrowers, risked being deemed to have filed the required good faith certificate of need in bad faith if they had the ability “to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” Borrowers were advised to reconsider their current business position and their access to liquidity, and were given until May 7, 2020 to repay borrowed funds without risk of SBA action against them for failing to adhere to program requirements.  Borrowers were further advised that loans in excess of $2 million would be automatically audited, as would certain other loans below the $2 million threshold, as deemed “appropriate” by the SBA.  On May 6, the SBA extended the repayment deadline to May 14, promising additional guidance on the good faith certification before then.

On May 13, 2020, the SBA issued the promised additional guidance, stating 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 explained that it created the safe harbor because “borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.”  Further, the SBA also recognized that “borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance.”

The SBA reiterated that loans over $2 million “and other PPP loans as appropriate,” will be subject to review by SBA for compliance with program requirements.  If the SBA determines that a borrower “lacked an adequate basis for the required certification concerning the necessity of the loan request, it will 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 repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies.”

On May 14, the SBA extended the date for repayment to May 18, 2020.  The extension is automatic and does not require any application or request from the Borrower.

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