Just hours after the Small Business Administration released its May 13, 2020 review of frequently asked questions (FAQ) On the Paycheck Protection Program, experts began to weigh in on Question 46: “How will the SBA review the good faith certification required by borrowers regarding the necessity of their loan application?” ”
PPP loans under $ 2 million
Prior to the FAQ update, business owners who received P3s needed guidance, especially in light of questions about other potential sources of liquidity, such as in the public market. No business, especially no small business, wants to deal with this painful lack of clarity.
For this reason, FAQ 46 is a godsend. It specifies that “any borrower who, together with its affiliates, has received PPP loans with an initial principal amount of less than $ 2 million will be deemed to have provided in good faith the required certification regarding the necessity of the loan application” .
While this doesn’t forgive or excuse mistakes, inaccuracies or, worse, fraud, it does give existing PPP borrowers some degree of clarity at a time when we still don’t know how the coronavirus pandemic will play out.
The pandemic is a changing business climate. Just look at today’s headlines: “Workers File 3 Million New Unemployment Claims”; “Pandemic Accelerates Retail Apocalypse For Distressed Stores”; “A vaccine expert denounces the American response”; and how about that headline: “Scientists Examine How to Stop Wave 2”.
When can certainty be reached? Not for a while, doing FAQ 46 is a welcome relief, because I wrote on the 13.
Can new applicants skip certification?
Does FAQ 46 allow new applicants to ignore business necessity?
No, the standard has not changed. All applicants must show an adequate basis for the loan. That is, applicants must certify that “[c]the current economic uncertainty makes this loan request necessary to support the ongoing operations of the [a]applicant.”
As Day Pitney’s attorneys put it in an alert titled “SBA Safe Harbor Does Not Guarantee Free Passes For Covid-19 PPP Borrowers“Posted on May 13, 2020, the day of the FAQ update, anyone who applies for a PPP loan must” conduct a proper investigation and analysis before doing certification. “No one gets a free pass .
Questions from the SBA regarding certification?
Could the SBA question a loan of $ 2 million or less? Perhaps. What would be the consequences of a revision of the SBA? The Day Pitney Alert offers this insight:
“[I]If the borrower, after reasonable investigation, has formulated an honest subjective belief as to the veracity of the matter asserted in the certificate of necessity, the consequences for the borrower of being questioned by the SBA appear (on the basis of the FAQ) be limited to (1) the loss of the forgiveness and (2) the acceleration of the loan maturity, as long as the borrower does not challenge the SBA’s determination that a borrower did not no good faith basis for required certification. If the borrower wishes to challenge the SBA’s decision, they are free to do so, but the SBA then reserves the right to take enforcement action and to refer to other agencies.
You can always challenge the SBA’s determination. However, “the SBA then reserves the right to pursue enforcement action and referral to other agencies,” according to the alert.
What other agencies? The US attorney’s office, for example.
According to Day Pitney’s alert: “The SBA is not the only executive branch with the power to sue a borrower. For example, with respect to all required loan certifications, including good faith certification of necessity, the United States Attorney’s Office can bring its own action under 18 USC § 1001 (criminal charge for knowingly making a misrepresentation to influence an SBA act) or the False Claims Act (31 USC §§ 3729, et seq.). “
For more expertise, particularly on affiliations, consult the Marcum, LLP website.
Michael Maksymiw, Partner, Tax & Business Services (SBA Task Force) and Andy Alan, Director, Advisory Services (SBA Task Force), at Marcum LLP, added this:
“It is important to count the affiliates, as we saw in April, many public companies with multiple locations initially received PPP loans and have already repaid the funds or are planning to do so.”
What’s in store for you?
Expect more advice from the SBA on PPP loans. Go directly to the source: sba.gov.