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SBA and Treasury Clarify PPP Certification of Need

A borrower of a Paycheck Protection Program Loan certified on its application that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  After muddying the waters with its intermediation guidance regarding that certification, the SBA and Treasury issued guidance today clarifying many issues for borrowers.

Updated today, May 13, 2020, FAQ #46 of the Paycheck Protection Program Loans Frequently Asked Questions clarifies that:

  • Any borrower (together with its affiliates) that borrowed an original principal amount of less than $2 million is presumed to have made the certification in good faith
  • For borrowers of more than $2 million, the good faith inquiry is individualized, based on the borrower’s specific circumstances, the language of the certification, and SBA guidance
  • If the SBA determines that the certification was not made in good faith, the borrower will be required to repay the loan and the lender will be notified that the borrower is not eligible for forgiveness
  • If a borrower repays the loan, there will be no further enforcement action taken

There are still many questions to be answered regarding the details of the SBA audit inquiry, i.e. whether repayment must be made in a lump sum or according to the PPP loan terms, whether the SBA will consider the certification in regards to the entire loan amount or whether it may find a portion of the loan request was “necessary,” etc., however, FAQ #46 provides clarity regarding the certification itself and allays fears of criminal penalties caused by the intermediate guidance and public statements by government officials.

Borrowers should compile documentation to support that the loan was necessary at the time of application based on economic uncertainty and the borrower’s individual circumstances (i.e. potential supply chain issues, reduced demand, business closure orders, expiring credit, balance of available credit or lack thereof, difficulty in obtaining payments from clients, etc.).  This documentation will help justify the certification and satisfy a later SBA audit inquiry. 

Borrowers should work with their attorney, accountant, and banker to satisfy the SBA’s audit inquiry, justify the loan certification, and protect the forgivability of a PPP loan.  As further details develop, we will do our best to keep our clients informed.  In the meantime, please contact a MacDonald Illig attorney if you have any questions regarding your PPP loan.