A.
Safe Harbor and Good Faith Certification
In recent updates to the Frequently Asked Questions offered by the SBA to serve as guidance on Paycheck Protection Program (PPP) loans, there has been an increased focus on the certification made by all loan applicants that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
The SBA has cautioned that:
Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
Recognizing the confusion among borrowers based on the changing guidance and overall uncertainty, the SBA established a safe harbor providing that any business returning PPP funds by May 18, 2020 will be deemed to have made the certification in good faith.
Additionally, the updated guidance provides 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
.” This provision will give comfort to many businesses receiving PPP loans of less than $2 million that the SBA will not be actively scrutinizing the certification as to economic need.
However, the SBA does expect to audit or review all PPP loans in excess of $2 million, but has further stated that if the SBA determines that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan, the borrower will be afforded an opportunity to repay the loan before the SBA pursues administrative enforcement or referrals to other agencies.
B.
Employee Rehiring and Loan Forgiveness
Most, if not all, PPP loan borrowers will seek to have portions of the loan forgiven based on meeting requirements to maintain certain employment levels or returning to pre-COVID19 levels by June 30, 2020. One of the most common questions from PPP loan borrowers facing economies and jurisdictions with vastly different circumstances is what happens if the business offers to re-hire an employee, but the employee decides not to return to work.
As set forth in the recent guidance, the SBA and Treasury Department plan to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the PPP loan forgiveness reduction calculation.
In order to qualify, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. This exception further reinforces the need for all PPP loan recipients to maintain accurate documentation regarding not only expenditures of PPP loan funds but all related re-employment activities.
Lastly, employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
