06 May 2020

Safe Harbor for PPP “Need” Certification Extended to May 14

***Information and guidance in client updates was up to date at time of publication. During the pandemic, information and guidance has been changing rapidly. If you have any questions about the information contained in a client update, please contact the author(s) or your Miller Johnson attorney.***

As explained in the previous client update Does My Business Need to Repay its PPP Loan by May 7?, the guidance from the Small Business Administration (SBA) and Treasury Department on the required “need” certification for PPP loan applicants has been evolving since the passage of the CARES Act.  Just yesterday, the SBA and Treasury Department issued yet another piece of relevant guidance—FAQ 43— extending the safe-harbor provision for repayment of PPP loan proceeds from May 7 until May 14, 2020.

By way of background, under the statutory language of the CARES Act, an applicant for a Paycheck Protection Program (PPP) loan must certify in good faith “that the uncertainty of economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.”  15 U.S.C. 636(a)(36)(G)(i)(I).  Under the CARES Act, negative impact of COVID-19 is also presumed for eligible borrowers.  In line with the language of the statute, the SBA and Treasury Department issued a series of guidance reiterating the language of the statute, encouraged businesses to apply as quickly as possible, and unequivocally stated that small businesses did not need to look for funds from other sources before applying for a PPP loan.

On April 23, 2020, the SBA and Treasury Department appeared to change course.  On that day, presumably in response to public backlash after large public companies received PPP funds, the SBA and Treasury Department published FAQ 31, which seemingly sets forth a different—and more stringent—standard of “need” certification.

FAQ 31 implies that for a borrower’s certification to be made in good faith, the borrower must lack an “ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”  This was not a consideration when borrowers were applying for the first round of PPP loans, yet borrowers that do not meet this revised standard are instructed to return any funds they received by May 7, 2020, or risk their certification being deemed in bad faith or otherwise deficient.  FAQ 39, added on April 29, 2020, further states that all loans greater than $2 million, and others “as appropriate,” will be subject to review by the Treasury Department under the revised standard set forth in FAQ 31.  Again, the SBA stated that additional guidance regarding the review procedures would be forthcoming, but none has been made available at the time of this writing.

The SBA has granted PPP borrowers an additional week to weigh their options.  In FAQ 43, the SBA extended the repayment date for this safe harbor to May 14, 2020, and stated that it “intends to provide additional guidance on how it will review the certification prior to May 14, 2020.”  Some of the key considerations and options for PPP borrowers to consider are discussed in more detail in our May 5, 2020 webinar on this topic:

With the benefit of both business attorneys and litigators, the Miller Johnson team has stayed apprised of the evolving guidance and is equipped to work with you and your other advisors (accountants, financial advisors, etc.) to assess your certification, help you navigate your options, and implement best practices, such as preparation of “audit-ready” records in the event of an SBA or other review.