Today the SBA again updated its FAQs related to PPP loans, this time with a welcome safe harbor to the “necessity” certification required by all borrowers. In FAQ46, the SBA announced that “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.” This is good news for many borrowers who had determined a need for the PPP loan but were worried that the SBA might not agree with their assessment.

As you are aware, over the past few weeks the “necessity” certification for a PPP loan has been in the news and on everyone’s minds. As part of the PPP application, every borrower was required to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” In response to several large public companies receiving PPP loans, the SBA issued FAQ31 which focused on whether large companies had the ability to access other sources of liquidity and reiterating the requirement that the PPP loan must be a necessity. This guidance was later extended to all borrowers, causing many borrowers to question whether the SBA would agree with the borrower’s determination that the loan was “necessary” and whether they should return the loan just to be safe. The SBA set an initial date of May 7, 2020 for borrowers to return the PPP loan if they could not meet the “necessity” certification. In FAQ43, the SBA extended the return-by date to tomorrow, May 14, 2020.

Today’s FAQ announcement clarifies that the SBA will accept that the necessity certification was made in good faith by borrowers (including their affiliates) that received less than $2 million in total of PPP loans. It also provides that borrowers receiving in excess of $2 million, while unable to rely on the safe harbor, may still be able to meet the necessity certification based on their individual circumstances. The SBA reiterated that loans in excess of $2 million will reviewed by the SBA for compliance with PPP program requirements.

The link below is the text of the FAQ, and it explains the reasoning behind this decision. https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

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SBA Announces Safe Harbor for PPP Loan “Necessity” Certification