Guidance Released on “Good-faith Certification”
The Small Business Administration (SBA), in consultation with the Department of Treasury (Treasury), took steps this week to alleviate confusion concerning the Paycheck Protection Program (PPP) which was instituted as part of the monumental CARES Act legislation. Since the introduction of the PPP, the SBA and Treasury have fast-tracked guidance for taxpayers and business owners through the issuance of a number of Frequently Asked Questions (FAQ).
In response to criticism received following stories that large public companies had claimed significant PPP loans, a new FAQ was issued on April 23, 2020 which was meant to remind companies of the required certifications made at the time of submitting a PPP loan. The answer to question 31 provided that any borrower who determined they did not meet such required certification was permitted to repay the loan without penalty by May 7, 2020. In conjunction with the issuance of this FAQ, Treasury Secretary Mnuchin publicly threatened that any company that received a loan in excess of $2 million would be subject to scrutiny and audit. Following those developments, widespread confusion gripped business owners who had already received loans or were contemplating submission of an application.
Following weeks of uncertainty about how and if audits would be conducted, FAQ 46 was issued on May 13, 2020 which clarified that “[a]ny 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.” This admission by the SBA and Treasury is important as it provides clarity for all PPP loan recipients who received loans of less than $2 million in total—including affiliates aggregated together. Additionally, the FAQ mitigated the severity of threatened audits for recipients in excess of $2 million as it explained that 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, 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 necessity of the loan request.”
Finally, FAQ 47 extended the repayment date for any borrower to May 18, 2020.