Yesterday, May 13, 2020, the U.S. Treasury Department issued new guidance regarding the Paycheck Protection Program (PPP). Previously, the Treasury Department indicated that applicants and borrowers should review their applications in order to be sure that they could make the required certifications regarding the necessity of the loan in good faith. The Treasury Department had also advised that certain loans in excess of $2 million would be audited.
“Automatic” Good Faith for Smaller Borrowers
The new guidance, appearing as Questions 46-47 in their FAQ’s on the PPP, provides more information on the review of borrowers’ certifications. The guidance states that borrowers that, when combined with their affiliates received less than $2 million, will automatically be deemed to have made the certification in good faith. This is consistent with the Treasury Department’s prior guidance that their review would focus on Paycheck Protection Program loan recipients of more than $2 million.
The Treasury Department also clarified that borrowers that received more than $2 million may still have made the certification in good faith depending on their individual circumstances. That is, loans of more than $2 million are not prohibited, nor have those borrowers necessarily acted improperly. It all depends on the individual circumstances of the borrower. However, if the Small Business Administration determines during the course of its review of a loan that a borrower lacked an adequate basis to make the certification regarding the necessity of the loan request, the SBA will seek repayment of the loan and will notify the borrower’s lender that the borrower is not eligible for loan forgiveness.
Paying it Back
Importantly, the guidance also states that if the improper loan is paid back after the borrower receives notice from the SBA, then the SBA will not pursue additional administrative enforcement or referrals to other agencies.
Treasury Department guidance previously provided for a safe harbor period until May 14, 2020, but that has been extended until May 18, 2020. Borrowers that repay their loans before then will be deemed to have made their certifications in good faith.
This guidance should be a relief to smaller borrowers who were concerned about the prospect of an audit.
We will continue to provide additional information as the Treasury Department issues further guidance.