Most PPP Borrowers Receive Certification Safe Harbor

Dunlap Law Insights

The SBA and Treasury issued new guidance on PPP loan-request certifications. Most PPP borrowers will now benefit from an automatic safe harbor, which should remove certification questions for loans under $2 million. Specifically, the guidance says that borrowers 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.” Most PPP borrowers will benefit because very few PPP loans exceed $2 million.

This safe harbor arrives just as the safe harbor to repay unjustified PPP funds ends. As we discussed, a borrower who obtained a PPP loan but who can’t justify the certification that “[c]urrent economic uncertainty” made the loan request “necessary” can repay the loan in full and be deemed to have made the certification in good faith. The repayment safe harbor has been extended to May 18, 2020.

The new guidance is intended to instill more small-business confidence in PPP. The SBA and Treasury want the safe harbor to “promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees.” But the guidance doesn’t mean that the rules are now optional. “[A]ll PPP loans in excess of $2 million, and other PPP loans as appropriate,” will be audited for compliance with PPP Interim Final Rules and the borrower application form.

If the SBA determines that a borrower lacked an adequate basis for a necessity‑certification, then it will seek repayment, and the borrower will be disqualified for forgiveness. Cooperation with SBA repayment requests is incentivized. “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.”

For legal advice specific to the operation of your Minnesota business, please contact us at Dunlap Seeger.