May 14, 2020
by Gregory S. Dowell
The SBA announced on Wednesday, May 13, 2020 that it will assume that businesses that received Paycheck Protection Program loans (PPPL) of less than $2 million have met the required certification to show that they received the loans in good faith. PPPLs were created by law to provide small businesses with resources so that they could continue to maintain their payrolls.
There has been some concern about the requirement to make the certification. Immediately following the first awards of the PPPLs, it became known that many public companies had managed to receive loans. This caused a general outcry that these public companies had access to public markets and other sources of capital, and these larger businesses were preventing other nonpublic businesses from accessing the funds. It was also questioned whether these businesses needed the funds, in the spirit intended by the law.
The Treasury’s Frequently Asked Questions (“FAQ’s”) for the Payroll Protection Program Loans was updated to indicate that “Any 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.” The SBA determined that businesses that borrowed less than $2 million were more likely to have met the intent of the law, justifying this safe harbor. Loans in excess of $2 million will continue to be subject to possible SBA audits to insure that the good faith certification standard was met.