Q&A Regarding SBA’s Good-Faith Certification

The US Treasury and the SBA issued the following FAQ today – FAQ #46. This FAQ should help clear up some of the uncertainty most PPP loan borrowers have been experiencing over the past several days.

Question 46 states, “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”

Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: 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.

SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield
higher returns.

Importantly, 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, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.

Walz Group’s takeaways from this FAQ and our related advice include:

  • Borrowers who received loans under $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith. It does not appear, based on this FAQ, that any added scrutiny will be administered on the eligibility of loans under $2 million.
  • The $2 million threshold is based on affiliated groups, so if a business and its sister company each got loans under $2 million but that in combination add up to exceed $2 million, these loans do not automatically meet the good faith certification.
  • Thursday, May 14, is the deadline for returning funds if there are concerns about meeting the good faith certification. We know of some entities that have returned funds and the net amount of what they originally received less what was returned was deemed an entirely new loan, so net amounts under $2 million after a payback may meet the good faith certification. We recommend speaking with your lender if this is applicable to you.
  • Loans over $2 million may still be able to meet the good faith certification.
  • Penalties for failure to meet good faith certification on loans over $2 million may be limited to immediate repayment of all loan proceeds and no forgiveness of any portion of the loan.
  • If you have not yet applied for a PPP loan but may now have interest in light of this new information, please reach out to a Walz Group professional. We are here to help you through these difficult times.
  • If you have concerns about meeting the good faith certification for loans over $2 million, please contact us so we can discuss in more detail with you.

The entire list of US Treasury PPP Loan Program FAQs can be found at this link: home.treasury.gov/PPP-Frequently-Asked-Questions.pdf).