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SBA PROVIDES MUCH NEEDED GUIDANCE ON THE “NECESSITY” CERTIFICATION FOR PPP LOANS AND THE IMPACT ON THE FORGIVENESS PROCESS

(Last updated May 13, 2020)

Today (May 13, 2020), the SBA released an update to its PPP FAQs in which it added a single – but critically important – Q&A. Question 46 of the FAQs deals with the “necessity” certification that has been the subject of much discussion – and angst – for many businesses in recent weeks.

Two things stand out:

(1) Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be automatically deemed to have made the required “necessity” certification in good faith as it is unlikely that they would have adequate access to sources of liquidity.

(2) For those borrowers who received a loan in excess of $2 million, an opportunity will be provided to explain their justification (think “necessity”) in pursuing their PPP loan and, if they are determined to not have been an appropriate recipient, they will have the opportunity to pay the loan back promptly in which case “SBA will not pursue administrative enforcement or referrals to other agencies . . . .”

Question 46 and its answer can be found in the PPP FAQs here.

This development is expected to bring quite a bit of peace to many business owners as smaller borrowers will have the benefit of the “safe harbor” as to the necessity certification and larger borrowers will have the opportunity to pay back their loans should they be determined to not have been an eligible recipient – and thereby avoid the specter of the previously threatened administrative or criminal enforcement actions.

To be clear, all PPP borrowers will still be required to demonstrate appropriate and timely uses of PPP funds as part of the forgiveness process. To that end, we reiterate our previous recommendation each PPP borrower begin now (to the extent not already underway) to build its case for forgiveness by documenting company decisions made leading to the PPP application and by tracking and compiling records on PPP loan fund usage. Additionally, we recommend that each borrower submit its application for forgiveness as soon as the 8-week period for PPP fund utilization is complete. We expect that lenders will quickly be overwhelmed by the volume of forgiveness applications.

David Heidenreich
dheidenreich@ccsb.com
214.855.3031