Safe Harbor for PPP Loans

The Paycheck Protection Program (PPP) has been a useful tool for providing companies with needed working capital during an unprecedented crisis. Unlike other loan programs, the PPP, which was created as part of the CARES Act, was rolled out quickly. The focus was on getting money into the hands of businesses with urgent needs. Unfortunately, this left little time for issuance of guidance and rules around loan qualification, repayment, and forgiveness. The program is being updated while loans are issued, creating some uncertainty.

There have been many questions about how the SBA will evaluate a borrower’s good faith certification and whether eligibility criteria were met. The lack of guidance has left many hesitant to use loan funds because of fear of the unknown. On May 13th, 2020, the SBA updated its guidance on good faith certification reviews and safe harbor repayment deadline, to allow borrowers to decide if repayment is necessary. To help clients, prospects, and others, JLK Rosenberger has provided a summary of key points below.

Evaluating the Necessity of a PPP Loan

The guidance provided as part of the PPP FAQ document published by the SBA, specifically addresses how they will review a borrower’s good-faith certification concerning the necessity of the loan request. The SBA has created a safe harbor pertaining to the good faith certification review process. Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2M will be deemed to have made the required certification. The safe harbor is deemed appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity. It will also promote economic certainty as borrowers with more limited resources endeavor to retain and rehire employees.

Concurrently, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification. If it is determined that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan, the SBA will seek repayment of the outstanding balance. If repaid, the SBA will not pursue administrative enforcement or make referrals to other agencies.

For those businesses with loans greater than $2M, there are likely still many questions about how the SBA will review their good faith certification and a host of other concerns. However, at this point, no additional information has been made available.

Safe Harbor Deadline Extended

The SBA also announced an extension of the safe harbor date by which borrowers can return PPP loan funds from May 14th to May 18th. This is an automatic extension and is designed to allow businesses the opportunity to digest the latest guidance. This is the third time the deadline has been extended, and it is unclear whether another is forthcoming.

Contact Us

The guidance is welcome news for businesses with PPP loans, yet still leaves many questions unanswered. There is now an extended window of opportunity to determine whether the loan should be repaid. Our team will continue to monitor the situation and provide updates when they become available. In the meantime, if you have questions about the latest guidance or need assistance with a COVID-19 issue, JLK Rosenberger can help. For additional information, call us at 949-860-9892 or click here to contact us. We look forward to speaking with you soon.