What Constitutes Good Faith Certification
Concerning the Necessity of a PPP Loan?
When applying for a Paycheck Protection Program (PPP) loan, the business is required to make a "good faith" certification that current economic uncertainty makes the loan request necessary to support its ongoing operations. Many businesses applied for a PPP loan under a "good faith" certification that the loan was necessary.
Over the past several weeks, there have been many highly publicized situations in which companies that received PPP loans may not have appeared to need such a loan “to support its ongoing operations,” as they may have had access to other significant sources of capital or financing options. As a result of those situations, the Small Business Administration (SBA) instituted a deadline of May 7, 2020, for a business that received a PPP loan, but no longer felt they qualified, to return the money “no questions asked.” That deadline was subsequently extended to May 14, 2020.
On May 13, 2020, the SBA, in consultation with the Department of Treasury, issued an updated set of frequently asked questions (FAQs) to include
FAQ #46
. The updated FAQs were issued to address the requirement for a borrower to make a "good faith" certification concerning the necessity of their loan request under the program.
How will the SBA review a borrower’s required "good faith" certification concerning the necessity of their PPP loan request?
The SBA, in consultation with the Department of Treasury, has instituted a “safe harbor” provision for borrowers of a PPP loan in determining if they made a "good faith" certification for obtaining the loan. The “safe harbor” states, “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.”
For businesses that have obtained a PPP loan in excess of $2 million, the SBA had previously announced that those loans will be subject to review by the SBA. During the course of that review, the SBA will review all information provided in order to determine if there was an adequate basis for obtaining a PPP loan. If the SBA determines that the borrower lacked appropriate basis for obtaining the PPP loan, the SBA will seek repayment of the PPP loan balance and will disallow any forgiveness of the loan. Additionally, if the borrower repays the loan after being notified by the SBA that the borrower did not qualify for the PPP loan, then the SBA will not pursue additional enforcement against the borrower.
