New SBA Guidance Addresses Good Faith Certification of Loan Request
The Small Business Administration today released new guidance on one of the many outstanding questions related to PPP loan forgiveness ahead of the May 14 date to return PPP funds without penalty. The new FAQ #46 addresses borrowers’ required good-faith certification concerning the necessity of their loan request and how the SBA will review.
Specifically, the guidance clarifies the following:
- Any original loan principal amount less than $2 million will be deemed to have made the necessity of the loan certification in good faith. The stated logic of this dollar amount threshold is these borrowers are less likely to have access to adequate sources of liquidity.Our take: This suggests that borrowers cannot pay down a portion of the principal to get the loan balance below $2 million, at least for this test. Additionally, these borrowers are still subject to the validity of other certifications made and the other rules of this program.
- For loans greater than $2 million, the SBA will review based on individual circumstance. If a borrower is found to violate “necessity,” the loan will be called and forgiveness will not be eligible. If a loan is repaid under these circumstances, there will be no further enforcement of the necessity certification.Our take: There is still a lack of clarity on what constitutes financial need or other sources of liquidity, as well as what leads to liquidity being “significantly detrimental to the business,” as referenced in FAQ #31.
Still outstanding/unchanged: No update to the May 14 date, so the funds can also be turned in by then with no penalty.