Safe Harbor: New Guidance for PPP, Extended Deadline

May 13, 2020

By Brian Walsh, Faith and Giving Coalition

Treasury Provides Vital Safe Harbor for PPP Loans under $2 Million

– Larger borrowers, too, should face reduced risk and uncertainty thanks to new guidance

The Administration today provided additional guidance on the Paycheck Protection Program (PPP). New FAQ #46 should reduce uncertainty for all PPP borrowers, but it especially helps those receiving loans of less than $2 million.

To recap, all PPP borrowers must certify in good faith that “current economic uncertainty” made its loan request “necessary to support [its] ongoing operations.” Today’s guidance states that SBA will assess this certification differently depending on the size of the loan.

For borrowers receiving aggregate PPP loans of less than $2 million, SBA will deem them to have made the required certification in good faith. The $2 million figure includes loans to a borrower’s affiliates as defined by SBA’s interim final rule on affiliates.

This new guidance thus frees borrowers in this first category from having to sort through last month’s confusing guidance on economic necessity and “adequate liquidity.”  This is an important win for smaller houses of worship and faith-based organizations.

SBA says it is making this across-the-board determination because “borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity.” Further, this guidance will reduce the demands on SBA’s auditing resources.

For the second category, the new guidance reaffirms that borrowers with loans of $2 million or more “may still have an adequate basis for making the required good-faith certification.” If, however, SBA notifies a borrower in this category that it “lacked an adequate basis for the required certification,” SBA will not use this to “pursue administrative enforcement or other referrals to other agencies” as long as the borrower repays the loan.

The new guidance does not provide the sort of detailed criteria that would help borrowers in this second category ensure SBA will not end up disagreeing with their good-faith certification. However, the guidance lowers the risk of an organization facing civil or criminal punishment for making a mistake.

UPDATE:

SBA Extends PPP Safe Harbor Deadline, Originally Set for May 14, to May 18
– Borrowers considering returning PPP funds given more time to analyze yesterday’s new guidance

Late yesterday, the Small Business Administration followed up on its new guidance on PPP borrowers’ good-faith certification (see May 13 CARES Act Update below) by issuing new FAQ #47. This additional guidance extends the safe harbor deadline from today, May 14, to Monday, May 18. This is the date by which a borrower may return its loan funds and be deemed compliant with the PPP good-faith certification.

Yesterday’s guidance provided much-needed clarification regarding the good-faith certification, especially for any faith-based organization whose aggregate PPP loan is less than $2 million. But numerous FBOs—especially those with aggregate PPP loans of $2 million or more that are considering exiting the program early by repaying their loans before the deadline—will need this extra time to analyze yesterday’s guidance before making a final decision.

According to FAQ #47, this extension is automatic and does not require an application.

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