Additional Guidance Regarding PPP Loan “Necessity” Certification

On May 13, 2020, the SBA released FAQ #46, which provides additional guidance regarding how the SBA will review a borrower’s certification concerning the necessity of their loan request. FAQ #46 can be found here:

SBA Review Safe Harbor

Under the new guidance, the SBA has provided a safe harbor for all borrowers that, together with their affiliates, received less than $2 million of PPP loans. The safe harbor provides that these borrowers will be “deemed to have made the required certification concerning the necessity of the loan request in good faith.” This safe harbor regarding the “Necessity Certification” should provide comfort for borrowers who received less than $2 million in PPP loans.

Review of Loans Over $2 million

For loans larger than $2 million, the borrower’s individual circumstances will determine whether the “Necessity Certification” was made in good faith. These borrowers should refer to FAQ #31 for guidance on whether the loan request was necessary. FAQ #31 provides that the borrower “must make [the Necessity Certification] in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

If the SBA determines that a borrower did not have an adequate basis to certify that the loan was necessary, the SBA will seek repayment of the loan and the borrower will not be eligible for forgiveness. If a borrower repays the loan after being notified that it did not have an adequate basis to make the “Necessity Certification,” the SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the “Necessity Certification.”

Safe Harbor Applies Only to the “Necessity Certification”

It is important to note that the safe harbor provision for loans under $2 million applies only to the “Necessity Certification.” The SBA may still audit these borrowers regarding other certifications made by the borrower as well as the use of the PPP loan money.

Can AWD LAW help me?

AWD LAW is here to answer your questions. This summary is intended to serve as general information for interested persons, but it is not legal advice for any specific situation. AWD LAW attorneys are available to answer fact-specific questions for our clients. Our number is (928) 774-1478.

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