SBA Addresses Good Faith Certification In FAQ #46
On April 23, 2020, the Small Business Administration (“SBA”) published FAQ #31, indicating that borrowers should reexamine their good faith certification made on the application for a Paycheck Protection Program (“PPP”) loan. FAQ #31 indicated that borrowers should have considered liquidity levels and evidence of current adverse business conditions—neither of which considerations had been included in the CARES Act or other guidance. The SBA stated that, “[a]ny borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.”
On May 5, 2020, the SBA extended the repayment deadline to May 14, 2020 and stated that the SBA would provide further guidance regarding the certification before such time. On May 8, 2020, the SBA published a Ninth Interim Final Rule making such extension official and reiterating that more guidance would be released prior to the May 14 deadline.
On May 13, 2020, one day before the extended deadline, the SBA released FAQ #46, taking a more lenient approach towards certification. The certification handles borrowers differently depending on their loan amount. First, a certification as to the loan necessity will be deemed to be made in good faith for borrowers (together with their affiliates) that received less than $2,000,000 in PPP loan funds. Second, for borrowers receiving more than $2,000,000, if the SBA determines that the borrower lacked an adequate basis for the certification, the SBA would seek repayment and not allow forgiveness. If the borrower repays, the SBA would not pursue further enforcement and likewise would not refer the applicant to other agencies for enforcement.
This newest guidance may allow some borrowers that had been concerned about the effect of FAQ #31 to breathe a sigh of relief. Note that FAQ #46 only addresses the certification as to the necessity of the loan and does not provide relief from other statements made by borrowers in the Application. You can read all of the FAQs here. If you have any questions regarding the SBA PPP loans, or other aspects of the CARES Act, please contact a Baird Holm LLP attorney.