As an update to our May 7, 2020 THE SBA AGAIN BACKTRACKS … SIGNALING YET ANOTHER IMPORTANT CHANGE TO PPP RULES Client Advisory, this morning the SBA fulfilled its promise “to provide additional guidance on how it will review the certification prior to May 14, 2020.” This morning’s announcement is big news. On the eve of tomorrow’s extended “return the money no questions asked” deadline, the SBA now instructs:
“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.”
This lays to rest the worry and uncertainty caused by Secretary Mnuchin’s April 28 announcement that all recipients of PPP loans “for more than $2 million” will “face full audits, with spot checks for [those receiving] smaller amounts.” It also lays to rest how the SBA will enforce the directives handed down that same day in its Frequently Asked Questions Nos. 31 and 37 – both purportedly “remind[ing] borrowers to review carefully the required certification on the Borrower Application Form that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
While the SBA’s explanation for this sea change in policy is somewhat questionable (the SBA in effect says borrowers who received less than $2 million are “less likely” to have gamed the system), the news is indeed welcome for those fortunate enough not to have already abandoned their loans.
This morning’s guidance also provides happy news to those who received $2 million or more. In short, it says such borrowers found to have lacked “an adequate basis for the[ir] required certification concerning the necessity of the[ir] loan request” will simply be given an opportunity to repay the loan. If they do, the SBA now says it “will not pursue administrative enforcement or referrals to other agencies” for civil or criminal prosecution.
Finally, this morning’s guidance assures lenders the “SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.”
It should be emphasized, however, the complete and partial “amnesty” the SBA announced this morning only applies with respect to questions pertaining to PPP borrowers’ “need” for federal aid. It does not apply with respect to other possible disqualifying factors, including the proper application of the SBA’s complex “affiliation” rules. That is to say, borrowers who falsely certify they meet the SBA’s definition of a “small business concern” under these rules presumably are still subject to administrative, civil and criminal prosecution. Nor does it excuse possible misuse of PPP funds.
The full text of this morning’s (FAQ 46) SBA guidance can be found here.
Author: David A. Robinson, President and Founding Shareholder, Enterprise Counsel Group