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On May 13, the Small Business Administration (SBA) issued additional guidance regarding the Paycheck Protection Program (PPP). They added a highly anticipated new question to their lengthy FAQ: “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”

One of the requirements when submitting a PPP loan application is a self-certification by the applicant that the loan is necessary to support their ongoing operations in light of the current economic circumstances. Many borrowers called for further clarification on this point out of fear that they would later be judged as having made a false self-certification and fall under penalty.

Wednesday’s clarification describes a safe harbor for borrowers who, along with their affiliates, receive PPP loans of $2 million or less. In other words, those who receive PPP loans of $2 million and less will not have their self-certifications reviewed. The SBA clarifies the thinking behind the creation of this safe harbor, explaining that:

  1. Borrowers with loans of this size are unlikely to have access to other sources of liquidity during this difficult economic time (therefore their self-certification is very likely accurate).
  2. The creation of the safe harbor will dispel a lot of uncertainty that these smaller businesses had about accepting PPP loans, thereby helping the program to operate more smoothly.
  3. Discounting this set of loans from the review process will allow the SBA to better handle the large workload they have before them and focus their efforts on the subsection of borrowers whose self-certifications may not be genuine.

The SBA clarification also addressed what will happen if a borrower who receives more than $2 million is found to not have an adequate basis for their PPP loan, upon review. If this is the case, the borrower will need to return the balance of the loan. If they do so, the SBA will not “pursue administrative enforcement or referrals to other agencies.”