On May 13, 2020, the Small Business Administration (SBA) and Treasury Department (Treasury) issued updated guidance providing much needed clarity regarding the certifications borrowers must make to receive a loan under the Paycheck Protection Program (PPP).
As part of the application for any loan under the PPP program, borrowers must certify in good faith that “[c]urrent economic uncertainty makes [the] loan request necessary to support the ongoing operations” of the applicant business. As my colleagues recently noted, public statements by Treasury Secretary Steven Mnuchin ramped up the pressure stating that businesses who violated this loan necessity certification could face criminal prosecution if they failed to return the loan proceeds. Borrowers were left to wonder how they could show that they had a good faith basis to make this certification and avoid liability.
The updated guidance provides much needed clarity and relief to PPP borrowers. It states that “[a]ny 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.” Businesses who received smaller PPP loans just breathed a collective sigh of relief. Based on this guidance, unless SBA or Treasury has reason to believe the certification was not made in good faith, any business that received less than $2 Million in PPP loan proceeds will be presumed to meet this requirement.
The new guidance also provided some relief for business that received loans over the $2 Million threshold. In auditing these PPP loans, if the Government determines that the borrower did not make the loan necessity certification in good faith, it will notify the borrower. If the borrower repays the loan, SBA and Treasury “will not pursue administrative enforcement or referrals to other agencies based on its determination” respecting the loan necessity certification. This ostensibly provides another safe harbor to businesses who may not have been able to make the loan necessity certification in good faith by allowing them to repay the loan rather than face potential suspension or debarment or even civil or criminal liability under the False Claims Act or other applicable law. However, the guidance lacks any indication of how quickly borrowers must repay the loan proceeds after receiving such a notice.
Although this new guidance provides welcome clarity and relief to many PPP borrowers, a great deal of uncertainty around the program remains. Businesses would be wise to consult with a team of experienced attorneys and accountants regarding their PPP loans to ensure compliance and limit liability.
ABOUT ANDRÉS VERA
Andrés Vera’s practice is concentrated on federal contracting and general corporate law. With a focus on small business government contracting, he is well-positioned to advise start-ups and small businesses seeking to enter the complex federal procurement landscape. His experience as a former clerk in the U.S. Small Business Administration’s (SBA) Office of Procurement Law allows him to counsel clients on compliance with the agency’s 8(a), HUBZone, Woman-Owned, and Service Disabled Veteran-Owned (SDVO) programs. He also advises federal contractors and subcontractors in bid protests, contract disputes with federal agencies, and general corporate administration. Prior to law school, Andrés was himself a government contractor for the U.S. Agency for International Development.
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