On April 23, 2020, the Small Business Administration (“SBA”) posted FAQ #31 concerning the Paycheck Protection Program (“PPP”), stating in relevant part that borrowers should review their application to assess their economic need for a PPP loan. Specifically, borrowers should determine if in good faith they can make the certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

The SBA stated that borrowers must make this certification in good faith, taking into account their current business activity, as well as 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.

Additionally, the SBA provided that borrowers that applied for a PPP loan and repaid the loan in full by May 7, 2020 will be deemed by the SBA to have made the required certification in good faith.

On May 6, 2020, the SBA extended the deadline to return the loans to May 14th, and promised to issue guidance concerning the borrower certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

Below is a summary of the SBA’s guidance on the foregoing certification issued May 13, 2020:

  • 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. The SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.
  • Borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances. The SBA has previously stated in FAQ #39 that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by the SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If the SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request (including whether the borrower had access to adequate sources of liquidity), the SBA will 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 repays the loan after receiving notification from the SBA, the SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. The SBA’s determination concerning the certification regarding the necessity of the loan request will not affect the SBA’s loan guarantee.
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Photo of Eric Stevenson Eric Stevenson

Eric Z. Stevenson is a member of Stark & Stark’s Business & Corporate Practice Group. Mr. Stevenson concentrates his practice in the representation of start-up companies, investment companies, and non-profit organizations on a variety of issues, including corporate formation, financing, franchising, licensing, acquisitions…

Eric Z. Stevenson is a member of Stark & Stark’s Business & Corporate Practice Group. Mr. Stevenson concentrates his practice in the representation of start-up companies, investment companies, and non-profit organizations on a variety of issues, including corporate formation, financing, franchising, licensing, acquisitions, executive compensation, equity compensation plans, employment agreements, real estate, governance, and intellectual property law.

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Rachel Lilienthal Stark is a member of the Banking & Financial Services, Business & Corporate, Intellectual Property and Non-Profit Organization Groups. Ms. Stark concentrates her practice in the representation of start-up and emerging companies and non-profit organizations on a variety of issues including…

Rachel Lilienthal Stark is a member of the Banking & Financial Services, Business & Corporate, Intellectual Property and Non-Profit Organization Groups. Ms. Stark concentrates her practice in the representation of start-up and emerging companies and non-profit organizations on a variety of issues including corporate formation, financing, franchising, licensing, acquisitions, executive compensation, equity compensation plans, employment agreements, real estate and intellectual property law. Ms. Stark also represents lenders in commercial loan transactions.

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Dolores R. Kelley is a Shareholder and member of Stark & Stark’s Business & Corporate, Real Estate, Zoning & Land Use and Beer & Spirits Groups. Ms. Kelley handles a wide range of matters for the real estate industry, including commercial transactions, leasing, condominium and homeowner association formation, and representation of developers and landowners in land use applications. In addition, Ms. Kelley represents clients in the beer, wine, and spirits industries on a variety of issues including corporate formation, financing, licensing leasing, acquisitions, and intellectual property law.