May 13, 2020

SBA Provides Safe Harbor for PPP Borrowers Receiving Less Than $2 Million

Issues Additional Guidance to Companies Considering Necessity Certifications
Holland & Knight Alert
David S. Cole | David A. Surbeck | Tim Ryan | Daniel T. Sylvester


  • New guidance – released by the U.S. Small Business Administration (SBA) just one day before the SBA's previously imposed repayment deadline of May 14, 2020 – informs borrowers that those receiving less than $2 million (together with their affiliates) will be deemed to have certified in good faith as to necessity for a loan under the Paycheck Protection Program (PPP).
  • SBA will continue to review loans of more than $2 million (and possibly others), and if SBA determines that an applicant lacked a good faith basis for certifying necessity, the borrower will have an opportunity to repay the loan to avoid further administrative enforcement and referral for potential further prosecution.
  • SBA did not provide additional factors for PPP borrowers, including those borrowing more than $2 million either individually or together with their affiliates, to analyze whether those borrowers had a good faith basis for their necessity certifications. Therefore, borrowers should consider all relevant factors.

The U.S. Small Business Administration (SBA) has released guidance just one day before its previously imposed safe harbor repayment deadline of May 14, 2020, to help a Paycheck Protection Program (PPP) borrower determine whether it lacked a good faith basis for certifying that the PPP loan request was necessary for the ongoing operations of its business.

On May 13, the SBA issued FAQ 46, which announced a safe harbor for PPP borrowers who, after taking into account the amount of PPP loans borrowed by their affiliates, borrowed less than $2 million. These borrowers will be deemed to have certified in good faith that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."

For the purposes of determining affiliates for the aggregation of a PPP loan, FAQ 46 and its corresponding footnote 20 state that an applicant applies the same rules for aggregation of PPP loan funds that it used for the aggregation of employees under the affiliation test as set forth in the Interim Final Rule on affiliation.

Borrowers who borrowed more than $2 million either individually or in combination with loans borrowed by their affiliates may also 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, although FAQ 46 itself provides no additional guidance on the factors that borrowers should consider.

Please see Holland & Knight's previous alert ("Key Factors for Companies to Consider When Certifying their PPP Need," April 25, 2020) for a brief overview of factors in addition to access to liquidity to consider such as the borrower's balance sheet, its projections, the time and cost involved to hire or rehire furloughed employees, location of the business and tolerance for public scrutiny. This is not an exhaustive list, and no one factor outweighs any other factor. Borrowers must continue to consider the totality of the facts and circumstances when determining need for a PPP loan.

FAQ 46 also reiterates that all PPP loans of more than $2 million will receive an SBA review and that others could as well. However, FAQ 46 informs borrowers that if the SBA concludes that a borrower lacked an adequate basis for the required certification concerning necessity, the borrower may repay the loan. If a borrower does so, then the SBA will not pursue administrative enforcement and it will not refer the matter to other agencies based on SBA's determination concerning the certification. SBA also advises lenders that an adverse decision on certification will not jeopardize SBA's guarantee of the affected PPP loan.

The SBA later released FAQ 47, which again extended the PPP repayment deadline. Borrowers now have until Monday, May 18, 2020, to determine whether they indeed made the required necessity certification in good faith. Our team of Holland & Knight attorneys is well versed in the PPP and stands ready to assist you, your management team and your board to help you make this critical decision.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the author of this alert for timely advice.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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