SBA Revises Guidance On PPP Loan Forgiveness

The Paycheck Protection Program (PPP) has been nothing if not fluid.

The initiative to extend hundreds of billions of dollars in loans to SMBs, which debuted in early April, has offered up lifelines to smaller firms – and plenty of confusion, too.

Some of the most basic questions – and their answers – have come under scrutiny, debate and even criticism.

Those questions are almost existential in nature: Who, what, how, when … and, of course, how much?

On Wednesday (May 13), the newest FAQs collected and answered by the Treasury Department and the Small Business Administration (SBA) tackled key issues of eligibility, audits and forgiveness (you can find those topics addressed, specifically, in questions 31 and 46).

As has been reported in this space, those topics have been top of mind for borrowers and would-be borrowers.

Now, the latest FAQs state that firms that had accepted funds below $2 million are assumed to have performed the certifications proving that such funds were necessary.

As stated in the document: “[The] SBA has determined that this safe harbor is appropriate, because borrowers with loans below this [$2 million] 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.”

This “safe harbor,” according to the document, will give these smaller PPP borrowers the ability to use their (relatively) limited resources to retain or rehire their employees. In addition, there seems to be the admission that auditing such a broad base of borrowers would be, well, taxing:

“Given the large volume of PPP loans, this approach will enable [the] SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns,” read the document.

The moves come after the SBA said late last month that companies with relatively greater access to liquidity would be deemed ineligible for the loans – a statement that set off a scramble by some larger companies to return loans that had already been granted.

Regarding loans exceeding that $2 million threshold, the SBA has said that borrowers that “do not satisfy this safe harbor” can still make the required good faith certification.

Generally speaking, the SBA also said that if reviews of lending activity (we’d assume above that $2 million level) establish that there was no real basis for certifying the necessity of the funds, the agency will seek repayment, having deemed those loans ineligible for forgiveness. The firms deemed ineligible will have the opportunity to repay the loan without additional SBA administrative enforcement (read: penalty).

Setting some guidelines for scrutiny and for the ability to sidestep punitive action may help ease business owners’ concerns as they consider whether to tap or return the funds. As reported this week, two individuals from New England were charged by the U.S. Department of Justice (DOJ) for allegedly fraudulently seeking PPP loans totaling more than $500,000. The individuals were charged by the DOJ with making false statements in their applications and reporting inflated payroll volumes.

The SBA has estimated that about 4.3 million loans worth $533.7 billion have been approved, including roughly 33,900 loans of more than $2 million as of last week.

The Questions of Size

And in an FAQ that specifically addresses whether businesses that are operated by larger firms with additional sources of liquidity can qualify for PPP loans, the SBA noted that “all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application.”

These companies may be able to obtain credit elsewhere, but must make the certification for economic need in good faith, taking into account business activity and liquidity. As the agency said, public companies “should be prepared to demonstrate to SBA, upon request, the basis for its certification.” Those borrowers who repaid their loans by May 7 will have been deemed to have made the certifications in good faith. The safe harbor deadline for businesses to return PPP loans if they have not met the “good faith” requirement is Thursday (May 14).