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PPP Updates: Safe Harbor and Guidance on Good-Faith Necessity Certification - Client Newsletter


Under the Paycheck Protection Program (PPP), prospective borrowers are required to certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support [their] ongoing operations.” On April 23, 2020, the U.S. Small Business Administration (SBA) cautioned borrowers to review their certifications and reassess their economic need for a small business loan under the PPP. The SBA later announced that it would “review” all loans of more than $2 million, in addition to other loans “as appropriate.”

The SBA implemented a limited safe harbor whereby borrowers could repay their loans by May 7 (later extended to May 14), whereupon the SBA would deem their certifications made in good faith. However, without additional details as to what this “review” would entail and whether their loan requests were indeed “necessary,” borrowers were left on their own to decide whether to return their loans, even as the safe harbor deadline fast approached.

Just one day before the May 14 deadline, the SBA extended the repayment deadline to May 18 and announced a new safe harbor for loans less than $2 million:

“Any borrower that, together with its affiliates [to the extent required under previously issued rules], 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.”

Thus, borrowers who are taking loans of less than $2 million no longer need to be concerned about the SBA subsequently determining that they did not make the required certification in good faith.

For loans greater than $2 million that do not fall within the safe harbor, the SBA noted that borrowers “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.” That said, if the SBA determines that a borrower who obtained a loan greater than $2 million lacked an adequate basis for the necessity certification, then it will seek repayment of the loan balance. But if the borrower then repays the loan, then the SBA will not pursue administrative enforcement or referrals to other agencies with respect to the necessity certification.

This is good news for borrowers of all sizes. In other good news, the SBA promulgated an interim final rule on May 13, 2020 that permits loan increases in two circumstances: (1) If a partnership received a PPP loan that excluded partner compensation from payroll costs, the partnership can receive a loan increase to include the excluded amount; and (2) if a seasonal employer received a PPP loan before April 28, and it is eligible for a higher maximum loan amount under the alternative criterion published on that date, the seasonal employer can receive a loan increase to match the higher amount. If a borrower is entitled to a loan increase, it can receive the additional funds even if its loan has been fully disbursed.

Should you have any questions about the PPP, please do not hesitate to contact us.

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