SBA Guidance Regarding Certification of Loan Necessity for PPP Loans

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to “provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.” The CARES Act includes an expansion of the so-called 7(a) loan program administered through The United States Small Business Administration (the “SBA”) to include Paycheck Protection Program loans (“PPP loans”), which are intended to provide eligible businesses with up to eight weeks’ worth of cash to be used for payroll costs, rent, utilities, and interest on mortgage loans.

When applying for a PPP loan, the applicant must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” On May 13, 2020, the SBA released guidance regarding how the SBA will review this certification by adding Question 46 to its list of Frequently Asked Questions. This guidance provides a safe harbor for any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million. These borrowers will be deemed to have made the preceding certification concerning the necessity of the loan request in good faith.

Businesses that have borrowed more than $2 million do not qualify for the safe harbor but can still make the foregoing necessity certification in good faith based on their specific circumstances. If, upon review, the SBA determines that the borrower lacked an adequate basis for making such certification, the SBA will notify the borrower and seek repayment of the borrower’s outstanding PPP loan balance and will inform the borrower’s lender that the borrower is not eligible for loan forgiveness. If the borrower repays the PPP loan after receiving such notice from the SBA, the SBA will not pursue administrative enforcement.

The Business and Corporate attorneys at Dvorak Law Group have the knowledge and experience to efficiently assist our clients with various business matters, including financing needs. Please contact Dvorak Law Group for specific questions and recommendations regarding how SBA loans may assist your business.

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