SBA Extends Safe Harbor Deadline to May 14 for Return of Paycheck Protection Program Loan Funds, Promises Additional Guidance on “Necessity” Certification Prior to New Deadline
Date: May 06, 2020
Our prior bulletin, Paycheck Protection Program Loans and Certifying “Necessity”: New Guidelines Highlight Potential Civil and Criminal Exposure Related to Obtaining PPP Loans, detailed the additional guidance issued by the Department of the Treasury regarding Paycheck Protection Program (PPP) loan eligibility and the required certification of need for the loans; Treasury’s intent to audit all recipients of PPP loans of $2 million or more; and the potential civil and criminal liability that borrowers could face if it is determined they failed to certify in good faith that their PPP loan request is “necessary.” That Small Business Administration (SBA) guidance attempted to clarify the criteria of whether a PPP loan is “necessary” to sustain the business and set a “safe harbor” date of May 7, 2020, for any borrower that had received a PPP loan to return the funds. For borrowers that return the funds, their prior “necessity” certification will be deemed to have been made in “good faith.”
Just two days before the May 7 deadline, on May 5, 2020, the SBA and Treasury extended the safe harbor deadline until May 14, 2020. This is an automatic extension, and no application needs to be filed to obtain this extension.
The SBA also promised to provide additional guidance on how it will review the “necessity” certification. While it did not specify when, it stated that this additional guidance would be provided prior to the new May 14, 2020 deadline. It is unclear what the additional, as‑yet-released guidance will entail.
While we cannot predict whether this new “necessity” certification guidance will materially alter the guidelines provided to date, borrowers likely should defer their final decision on whether to return any PPP loan funds until the new guidance is issued. Then, with the new information provided by such guidance, borrowers should reexamine their certification of “necessity” and determine whether they in fact satisfy the eligibility criteria for these loans, or whether they should return them by the new May 14, 2020 deadline.
As recommended in our prior client update, all PPP loan recipients should carefully consider the ramifications involved in retaining PPP loan funds. This includes close review of the Treasury Interim Final Rules on the PPP and related guidance, and reconsideration of the necessity of the PPP loan in light of all available guidance. In doing so, loan recipients should clearly document their analysis and rationale supporting the necessity of the loan, taking into account the borrower’s current business activity and its ability to access other sources of liquidity sufficient to support its ongoing operations in a manner that is not significantly detrimental to the business. As highlighted in the prior client update, the failure to make that certification in good faith could give rise to not just denial of PPP loan forgiveness, but also civil or even criminal liability.
Keep Abreast of What’s Next
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