By Julie Jason, originally posted on Forbes.com:
If you are a small business owner who applied for the PPP loan and later wondered if you should return the funds because of unclear certification requirements, I have some good news for you.
Today, May 13, 2020, the Small Business Administration (SBA) released an update of its frequently asked questions about the Paycheck Protection Program.
Focus on question 46, which is about the basis for making a good-faith certification to qualify for the loan.
What Is Good Faith Certification?
The borrower needs to certify that that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
There is no question about the uncertainty of the coronavirus pandemic environment; any business can attest to that.
But what does it mean to certify that the loan is necessary to support ongoing operations? Does that mean the business cannot get a loan elsewhere? Does it mean the business will shut its doors within a certain period if it does not get the loan? What would the business need to show to support the certification?
Finally, Some Clarity
Business owners will be relieved to hear that the SBA has now taken a stand on the certification needed by creating a simple, clear and concise standard that turns on the size of the loan.
Here is how that works, quoting from the FAQ’s answer to question 46.
“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.”
It’s that simple. And, it’s a point of clarity that will be welcome in the small business community, there is no doubt. It’s a huge help.
This safe harbor is as clear as it could be, which is exactly what businesses need to be able to act without worrying about interpreting the certification requirements. No interpretation is necessary. Your loan is either less than $2 million or it isn’t. That adds clarity, giving businesses the chance to make better informed decisions about retiring or retaining its employees.
The safe harbor also helps the SBA. “Given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns,” quoting the FAQ.
What About Loans Over $2 million?
These businesses will not have the benefit of this safe harbor. They will need to rely on the facts and circumstances of their individual situations. They will be subject to “review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. 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.”
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