PPP Loans: An Update to the Good Faith Certification

On May 13, 2020, the SBA published an update to its Frequently Asked Questions [FAQ 46] regarding how it will review borrowers’ Payroll Protection Program (PPP) loan good faith certifications.

The new FAQ states that borrowers that receive PPP loans in the 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. The new SBA guidance extends an automatic safe harbor to borrowers receiving less than $2 million in PPP funds.

Borrowers that received PPP loans for over $2 million will be subject to review by the SBA for compliance with all of the PPP requirements, including the certification of economic need. The certification of economic need is based on a borrower’s individual circumstances “in light of the language of the certification and SBA guidance.”

If during the course of its review the SBA determines that a borrower failed to meet the good faith certification (determining that the PPP loan was not a necessity), the SBA will notify the lender that the borrower is not eligible for loan forgiveness and the borrower will be required to repay the outstanding PPP loan.

Unfortunately the new SBA guidance fails to provide direction on what constitutes “necessity,” “liquidity” or when the use of such liquidity would be “significantly detrimental” [See https://www.wendel.com/news/ppp-loans-the-good-faith-certification/ for a discussion on those elements], leaving those with a PPP loan of over $2 million without clear guidance.