On May 13, 2020, the Small Business Administration (SBA) issued new, important guidance (available here) regarding how the SBA will review a borrower’s required good-faith certification of necessity made in its loan application. This new guidance should result in more recipients of Paycheck Protection Program (PPP) loans deciding to keep their loan proceeds to pay employees, rather than returning the monies by the “limited safe harbor” deadline, which the SBA extended to May 18, 2020.
According to the new guidance from the SBA, for loans under $2 million the SBA will scrutinize such loans less intensely and will “deem” a borrower’s necessity certifications for such loans to have been made in good faith. The SBA indicated that it will focus instead on the larger loans in excess of $2.0 million to preserve its own resources and for sound policy reasons.
Regardless of this new transparency from the SBA about its expected review processes, it is still true, and was reiterated in FAQ 46, that when “submitting a PPP application, all borrowers must certify in good faith that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’”
The PPP rules, requirements and guidance are less than perfect. Recklessly disregarding CARES Act requirements and the rules and regulations governing PPP loans can trigger treble damages, bring scrutiny from various government agencies, trigger a criminal investigation, and bring unwanted public scrutiny. Take time now to give your application and satisfaction of the eligibility criteria a second, careful examination to be sure you want to pursue new monies or keep the money already received. And document as soon as possible what you relied upon and your rationale for whatever decisions you made.
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