Treasury and Small Business Administration Expand Paycheck Protection Program Safe Harbor
May 13, 2020
As originally discussed in our May 6, 2020 Client Alert, the Department of Treasury and SBA issued additional guidance concerning the safe harbor for Paycheck Protection Program Loan recipients relating to the need-based certification contained in the loan application. To briefly recap, the safe harbor generally provides that recipients of Paycheck Protection Program Loans have until May 14, 2020 to return their Paycheck Protection Program Loan if they feel they are unable to provide the required certification in the loan application that reads as follows: “current economic uncertainty makes the loan request necessary to support its ongoing operations” in good faith.
On May 13, 2020, the Department of Treasury and SBA released FAQ Question 46 as part of their ongoing Paycheck Protection Program Frequently Asked Questions guidance[1]. Question 46 addresses how the SBA will review the above-referenced good-faith certification concerning the necessity of loan requests and sets forth two different review standards depending on the size of the loan.
Recipients of Paycheck Protection Program Loans in an original principal amount less than $2,000,000 will be deemed to have made the required certification concerning the necessity of the loan request in good faith. However, it should be noted that Paycheck Protection Program Loans made to a borrower’s affiliates will be included when calculating and determining whether or not the borrower is under the $2,000,000 threshold.
Recipients of Paycheck Protection Program Loans in an original principal amount exceeding $2,000,000 should be prepared to demonstrate an adequate basis for making the required good-faith certification. In the event that the SBA determines that the borrower lacked an adequate basis for the required certification, then the borrower will become ineligible to receive loan forgiveness and will be required to repay the loan. If the borrower repays the loan after receiving notice from the SBA regarding its determination, then the SBA will not pursue administrative enforcement or referrals to other agencies with respect to the certification concerning the necessity of the loan request. It should also be noted that FAQ Question 46 reaffirms the SBA’s statement that it intends to review all loan files for Paycheck Protection Program Loans to recipients in excess of $2,000,000 and other loans as it deems appropriate in order to determine if such loans are in compliance with the program requirements set forth in the Interim Final rules.
UKS will continue to monitor this developing issue and provide updates as necessary. The UKS Covid-19 Response Team is standing by, ready to help you and your business with questions or concerns regarding a wide range of legal issues relating to the Covid-19 pandemic. For further information on the Paycheck Protection Program, please contact Attorney John F. (Jef) Wolter, Attorney Gregg J. Lallier, or Attorney John J. Alissi.
Attorney Wolter is a member of the Firm’s Commercial Lending & Banking Practice Group. In the commercial finance area, Attorney Wolter concentrates in the transactional representation of banks, financial institutions, and small business investment companies. Attorney Wolter may be reached at jwolter@uks.com or at (860) 548-2645.
Attorney Gregg J. Lallier is the Chair of the Firm’s Venture Capital & Private Equity Practice Group. Attorney Lallier focuses his practice within the technology, private equity, and venture capital industries. Attorney Lallier may be reached at glallier@uks.com or at (203) 786-8313.
Attorney Alissi, currently serving as the Firm’s President, is a member of the Firm’s Commercial Lending & Banking Practice Group. Attorney Alissi represents commercial banks, finance companies and other debt and equity providers in all aspects of commercial lending. Attorney Alissi may be reached at jalissi@uks.com or at (860) 548-2619.
Updike, Kelly & Spellacy, PC would like to thank associate Michael J. Paciorek for his contributions to this client alert.
Disclaimer: The information continued in this material is not intended to be considered legal advice and should not be acted upon as such. Because of the generality of this material, the information provided may not be applicable in all situations and should not be acted upon without legal advice based on the specific factual circumstances.
[1] The full Paycheck Protection Program Loans Frequently Asked Question (FAQs) is available here.