Treasury and SBA Clarify That PPP Loans Under $2 Million Are In Safe Harbor

Much has been written about the uncertainty surrounding the Paycheck Protection Program (“PPP”) that was part of the Coronavirus Aid, Relief, and Economic Stability (“CARES”) Act in recent days and weeks. In fact, a Wall Street Journal article on May 12 highlighted how a significant number of small businesses that were approved for the loans were questioning whether they needed to return the loans in light of the SBA’s position that the loans be “necessary” for the business in light of the business’s liquidity and access to other sources of capital.

Well, on May 13, for those companies who, with affiliates, received less than $2 million in loans, the Small Business Administration and the Department of the Treasury have created a "safe harbor” clarifying that:

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 means that those businesses that were struggling to decide whether to keep their PPP loans because they may have access to other sources of liquidity or capital now have an answer: If you and your affiliates PPP loans were less than $2 million when issued, you can rest a little more easily if your only concern was whether the PPP loans were necessary for your business.

Additional guidance is still expected for businesses over $2 million in loans in light of the May 14, 2020, deadline to return loans or face review by the SBA. Though, the SBA did clarify that for those businesses:

If 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.

This means that those companies with more than $2 million in loans can rest a little more easily that the SBA will simply seek repayment and not necessarily seek criminal fraud charges.