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Should I Return My PPP Loan?

May 18, 2020 is the deadline for the SBA’s safe harbor period in FAQ #43 and the question on many borrowers’ minds is whether they should return the funds.

There are a lot of considerations that bear on whether borrowers met the required standard – that the current economic uncertainty made the loan request necessary to support their ongoing operations.  Did they need the loan?  Did they have sufficient funds on hand to weather the crisis?  Did they have access to capital? Were their forecasts regarding future revenue and expenses reasonable? Did they act in good faith in signing the loan application?

The good news is that none of this matters any longer for borrowers with loans under $2 million, taking into account PPP loans received by their affiliates. The SBA today issued a new safe harbor in the form of FAQ #46 that states such borrowers “will be deemed to have made the required certification…in good faith.”

Although FAQs represent nonbinding guidance from the SBA, the original guidance that sparked the certification controversy – FAQ #31 – was issued in the same form.

If you have any questions, please contact a member of Withum’s SBA Financial Assistance Services Group.

This is great news for borrowers with loans under the $2 million threshold. Borrowers with loans at or above that amount still have to wrestle with the tough factual issues inherent in the certification.

Below is the full text of FAQ #46. Please reach out to your Withum advisor if you have questions regarding this issue.

46. Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: 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.

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. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.

Importantly, 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 in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If 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, 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 SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning the necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.

SBA Financial Assistance Services

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