On May 13, 2020, the Small Business Advisory (SBA) offered additional information surrounding the good-faith certification required when applying for the Payroll Protection Program (PPP) loan.

The borrower must “certify in good faith that current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”

The SBA and Department of Treasury have determined that any borrower, together with it’s affiliates who 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 is good news for small borrowers.

Borrowers who received loans greater than $2 million will not satisfy this safe harbor test above. However, the SBA/Department of Treasury pointed out that borrowers with loans of more than $2 million 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. The SBA reiterated their previous statement that all PPP loans in excess of $2 Million will be subject to review for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. Unlike the language of the previous update, SBA softened the remedies available to those found to lack basis for the required certification concerning the necessity of the loan request as a result of the SBA review. The SBA will seek repayment of the full PPP loan amount and will inform the bank/lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, the SBA will not pursue administrative enforcement or referrals to other agencies.

Although the SBA/Department of Treasury did not offer any additional clarification surrounding the definition of “current economic uncertainty” or “necessary to support the ongoing operations of the Applicant,” this appears to be good news regarding potential civil liability. We still encourage borrowers to consult with legal counsel.