SBA Extends Safe Harbor For PPP Loan Repayment
We recently informed you that on April 23, 2020, the SBA further complicated the requirements for compliance with requirements of the CARES Act Paycheck Protection Program (PPP) by providing guidance that appears to be retroactive to borrowers who have already qualified for and received the proceeds of a PPP Loan.
The SBA’s guidance from April 23, 2020 provides that “…before submitting a PPP application, all borrowers should review carefully the required certification that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’ Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”
What if you already received a PPP Loan?
While the SBA response did not provide guidance on the factors private companies and nonprofits should consider when “retroactively” determining if their certification was made in good faith, the SBA did warn that PPP Loan recipients must “be prepared to demonstrate to SBA, upon request, the basis for its certification” that the PPP Loan was “necessary to support the ongoing operations of the Applicant.”
In addition, in its April 23, 2020, guidance the SBA provided a safe harbor to those borrowers by stating that any borrower that applied for a PPP Loan prior to the issuance of this new guidance and that upon retroactive review, completes their PPP Loan repayment in full by May 7, 2020, would be deemed by SBA to have made the certification in the PPP Application Form in good faith.
While it was expected that more guidance on this issue would be a part of the SBA Final Rule on the PPP Loan Program, as of this date, that Final Rule has not been issued, and not further guidance has been provided.
Safe Harbor date extended
On May 5, 2020 the SBA indicated that it expects to promptly issue this additional guidance to help borrowers to determine if they made the certification in the loan application in good faith. The SBA has also extended the safe harbor deadline by one week to May 14, 2020, (see question 43) such that any borrower who repays their PPP Loan in full by May 14, 2020, would be deemed by SBA to have made the certification in the PPP Application Form in good faith.
The Business Services Team at Gross McGinley continues to closely monitor the ongoing changes and developments with the PPP Loan Program and the debt forgiveness component, both for our banking and business clients.
This blog was originally published April 24, 2020 as “What is the SBA’s ‘Retroactive’ Guidance on PPP Loan Repayment?”; it was updated with new guidance on May 6, 2020.
Attorney Tom Reilly serves as Chair of Gross McGinley’s Business Services Group, providing legal counsel to regionally and nationally-held business and banking clients. He regularly provides guidance on commercial and banking law matters including financing, lending, and mergers and acquisitions.