SBA Provides $2 Million Safe Harbor on PPP Loans

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PPP Loan Update

On May 13, 2020, the Small Business Administration (SBA) and Treasury Department issued the latest FAQ on the Paycheck Protection Program (PPP) loan from the recent CARES Act. The SBA explained in this FAQ Question #46 how they plan to review a borrower’s required good-faith certification concerning the necessity of their PPP loan application. It should be stated that if the borrower does not believe they can substantiate the economic uncertainty, the SBA has informed borrowers that they could repay their PPP loan by May 14, 2020 (this repayment was originally scheduled for May 7, 2020, but the SBA postponed this by one week).

In FAQ #46, the SBA provided the following clarifications:

  1. The SBA and Treasury Department have determined that any borrower, together with its affiliates, that 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. The SBA went on to state a loan of less than $2 million is a proper safe harbor level as borrowers with loans less than this level “are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.”

    Therefore, any borrower with an original PPP loan of less than $2 million need not be concerned that their loan may or may not have satisfied the economic uncertainty standard that was part of the certification a borrower made when it applied for the loan. After earlier comments and announcements by the SBA, there was confusion as to what borrowers should do to document the uncertainty with their loan, and perhaps if they should repay their PPP loan. The guidance offered today in FAQ #46 removes that concern for borrowers with loans under $2 million.

  2. In FAQ #46 the SBA also addressed the situation for borrowers that received a PPP loan of $2 million or more. Borrowers with a loan of this size are outside the safe harbor noted above; however, they might still exhibit sufficient footing for making the required good-faith certification. This good-faith certification is founded on the facts and circumstances of each borrower’s situation and SBA guidance. The SBA has previously stated that PPP loans in excess of $2 million (and other PPP loans as appropriate) will be subject to further review by SBA. This review will include compliance by the borrower with the PPP loan requirements spelled out in the SBA’s Interim Final Rules for the PPP loan and the Borrower Application Form.

    If the SBA determines in the course of its review that a borrower did not have adequate basis for the required certification with its PPP loan regarding the necessity of the loan, the SBA will then: “seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness.” If the borrower then repays its PPP loan after receiving this notification from the SBA, the SBA will not implement “administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.”

    Accordingly, borrowers with larger PPP loans will undergo a detailed review—and if it is determined there was no economic uncertainty for the borrower in their PPP loan, the borrower will need to repay the loan and will not be eligible for any loan forgiveness. Borrowers with loans above the $2 million threshold may not want to repay any of their loan by the May 14, 2020 deadline. The decision if the borrower must repay their PPP loan will be made later in discussions with the SBA. These borrowers should still document the details for their PPP loan and the particular factors that produced the economic uncertainty necessitating their need for a PPP loan.   

Today’s FAQ #46 removes the cloud of uncertainty for many PPP borrowers who were contemplating whether they should repay their PPP loan. There are still questions that remain with the PPP loan, but the clarification offered in FAQ #46 should help borrowers move ahead.

Update: Late on May 13, 2020, the SBA released FAQ #47. The SBA indicated in its response that it: “is extending the repayment date for this safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor.” So, for any borrowers planning to repay their PPP loan, the deadline has been extended to Monday, May 18, 2020.

Please contact your Sikich advisor for any questions you may have with PPP loans. 

Below are recent Sikich articles dealing with the issue of PPP loan and economic uncertainty:  

SBA Allows Borrowers to Return PPP Loans if Unable to Show Loan Necessity: background on SBA FAQ #31 for borrowers on documenting a PPP loan or possibly repaying a PPP loan.

Borrowers Certification of Economic Need and Uncertainty for PPP Loan Considerations: a checklist to assist borrowers in documenting the economic uncertainty and need for their PPP loan. 

About our authors

Tom Bayer

Tom Bayer

Thomas E. Bayer, CPA, CExP, has more than 25 years of experience providing a broad range of accounting, tax, and business advisory services to commercial clients across various industries and Sikich offices. Tom has specialized expertise in the areas of business succession planning, tax planning and compliance, and business advisory. He puts his business succession planning abilities and knowledge to work firm-wide, serving clients in advisory services across the country.

Jim Brandenburg

Jim Brandenburg

Jim Brandenburg, CPA, has extensive experience and knowledge in corporate and partnership tax law, mergers and acquisitions and tax legislation. His expertise includes working with owners of closely held businesses to identify tax planning opportunities and assist them in implementing these strategies.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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