In light of the requirement’s retroactivity, the SBA has announced a safe harbor until May 7, 2020, for borrowers to return loans if any of the SBA’s subsequent guidance has changed the validity of their application certifications. Specifically, 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 the New Certification Guidance Means for You *****Update 5/06/2020***** Post on May 4, 2020 by Ellen Williamson Information regarding PPP loans are constantly changing. The FAQ’s discussion of public companies appears to be a reaction to the media backlash over the receipt of PPP loans by various public companies. In light of the new guidance, PPP loan applicants should carefully consider whether they are eligible borrowers, and PPP recipients should assess whether to retain the funds and document the necessity or return the funds. Cleveland, Ohio 44114, 10 West Broad Street 31 referred only to public companies, on April 28, 2020, SBA effectively confirmed, via FAQ No. Last week, an additional $310 billion in funding was approved for the Paycheck Protection Program. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. 1300 East 9th Street CHOATE HALL & STEWART LLP. While the FAQ does not change the legal standard, it makes clear that the Treasury Department and SBA are increasingly focused on ensuring that borrowers have a demonstrated need for PPP funds. 1.2 The CP3P … On April 23, 2020, SBA and Treasury added the following new FAQ concerning this certification, reproduced below in full: 31. One of the agencies’ primary mechanisms for conveying these requirements to borrowers has been through a regularly updated list of Frequently Asked Questions, many of which the SBA then formalizes through interim final rules that it publishes in the Federal Register. This certification has been the basis for criticism by, among others, the Secretary of the Treasury that successful applicants for large amounts of PPP loans may have had access to liquidity elsewhere and thus would have lacked a good-faith basis for the economic necessity certification. Suite 2400 Click on the button to download a pdf file of the PPP Certification Guide. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Recently, the SBA opened a “can of worms” when they wrote FAQ #31 (click here to see how the SBA addressed FAQ #31). Demand for the second wave of PPP funding, $310 billion approved by Congress on April 23, 2020, has slowed down considerably. When the SBA’s Paycheck Protection Program (“PPP”) opened for applications on April 3rd, it was so oversubscribed that it ran through its first $349 billion appropriation in just two weeks. The new guidance addresses the required certification that a PPP loan is necessary to support the applicant’s operations. Tonkon Torp LLP + Follow Contact. 2021 SBA Issues Guidance Regarding Certification of PPP Loan Necessity May 13, 2020 UPDATE: Following FAQ 47 issued by the U.S. Treasury and SBA, this article has been updated to reflect May 18, 2020 as the safe harbor repayment date. Subsequent guidance from the SBA and Treasury required borrowers to also consider other sources of liquidity and current business operations in determining their economic need for a PPP loan, and suggested that those borrowers with concerns regarding the sufficiency of their certifications could return the PPP funds by May 7 (later extended to May 14). While the FAQ does not change the legal standard, it makes clear that the Treasury Department … Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. As the PPP has evolved since its inception on March 27, so too have SBA and the  U.S. Department of Treasury’s articulation of its requirements. The Importance of Documenting the PPP Certification of Need Under SBA Guidance. Borrowers with PPP loans of less than $2 million will be deemed to have made the certification in good faith. FAQ No. In relevant part, this Act increases by $310 billion the funds appropriated for the PPP … NADA Guidance on FAQ 46 • Guidance consistent with the original purpose of the PPP • New safe harbor: – “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.” Borrowers should note that the False Claims Act does not require specific intent to defraud the government. A lender in the Paycheck Protection Program (PPP) can use this form to request (1) reinstatement of a PPP … Weston Hurd attorneys are available to assist your business in analyzing eligibility for participation in the program. 04.26.2020 . While the need certification will depend on the facts and circumstances of each borrower, best would be a record demonstrating that a PPP loan would save the jobs of employees who are soon to be terminated or furloughed, as this would be aligned with the congressional intent of the PPP. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith. However, if a business repays the loan in full by May 7, 2020, the SBA will deem the business to have made its certification … this guidance, 1 and to the PPP Interim Final Rules and any subsequent rulemaking in effect at the time the lender’s action is taken. The PPP has now come under public scrutiny, with news that loans bypassed small mom-and-pop shops in favor of larger businesses that may be more able to weather current economic conditions. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith. Recent guidance has caused some recipients of Paycheck Protection Program loans to reconsider the certification they made when they signed up for the loan: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” This certification is a slight paraphrase of the statute’s good faith certification requirement, “that the uncertainty of … In relevant part, this Act increases by $310 billion the funds appropriated for the PPP established on March 27, 2020, by the CARES Act. “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.” The announcement of the $2 million Payroll Protection Program (PPP) loan being subject to full review and the FAQs recently issued by the Department of Treasury (which focus on the certification of need) impact all borrowers of PPP loans. Borrowers may be eligible for PPP loan forgiveness. The new guidance, which applies to new loans and also to previously applied-for loans, comes in the form of an addition to the Treasury’s Frequently Asked Questions list for the PPP: Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan? Lenders may rely on a borrower’s certification regarding the necessity of the loan request. The Treasury Department’s new guidance now advises borrowers to assess their economic need for a PPP loan and to carefully review the required good faith certification, 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 their business. On April 24, 2020, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act. The new guidance suggests that publicly traded companies, in particular, will have to carefully consider their alternate sources of liquidity. The required certification was in place before. Borrowers should be prepared to have their determinations of need scrutinized by the SBA — both at the time of loan origination and upon application for loan forgiveness. Prior results do not guarantee a similar outcome. Understanding the SBA's New PPP Certification Guidance. The deadline was previously extended from May 7, 2020 and then again from May 14, 2020. CONTINUED. Under the new guidance, a business may no longer be considered PPP loan eligible, and the certifications they made in applying for such loan could be considered made in bad faith. The Small Business Administration (SBA) has announced that new loans under this second tranche of PPP appropriations will commence April 27, 2020. PPP applicants are required to make a number of certifications in connection with their applications, for example concerning their eligibility and the purposes for which they will use the loans. 1. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Although FAQ No. PPP Loan Certification Guidance – Should I Give the Money Back? That guidance, which appears as “FAQ” Question #46, provides this key safe harbor: 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 … While the FAQ directly addresses public companies, it is not limited to public companies, and all borrowers are required to take into account alternative capital resources. To learn more about a different kind of law firm experience, visit . Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Public companies with the ability to access public markets need to consider carefully whether they can make a need certification, as these types of borrowers are specifically called out in the FAQ. Borrowers should carefully document their process for determining the need for the PPP loan in board minutes and other materials. The required certification was in place before. The PPP rules are still evolving, even retrospectively, and the changing loan landscape requires attention to careful corporate compliance. Columbus, OH 43215-3469. SBA Releases Guidance on PPP Good Faith Need Certification. SBA has issued new guidance explaining how the SBA would review borrowers’ required good-faith certifications concerning the necessity of their loan requests and establishing a new role for the $2 million threshold. 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