On April 23, 2020, the SBA published a guideline in their list of Frequently Asked Questions addressing businesses that received a PPP loan but that also have sources of funding outside of the PPP loan. The guideline stated that a business that received a PPP loan must determine whether, due to other sources of funding available to the business, the PPP loan is considered “necessary to support the ongoing operations” of the business. If the business determines the loan is not necessary under this standard, the business is presumed to have applied for the PPP loan in bad faith. A business that determines it applied in bad faith may return the full amount of the PPP loan and avoid any penalty.
The guideline gave businesses until May 14, 2020 to return the full principal amount of the PPP loan. The SBA stated it would provide additional guidance on how it will review loans for this good faith certification prior the May 14, 2020 deadline. On May 13, 2020, the promised guidance was published.
The new guidance states that any business that received a PPP loan of less than $2 million will be assumed to have applied for the loan in good faith and will not be audited by the Department of the Treasury upon applying for forgiveness. This clears up previous statements from the SBA that some “other loans” would be audited outside of the $2 million threshold.
Businesses that received a PPP loan of $2 million or greater should expect to have their other sources of funding reviewed under the good faith standard. If it is determined that a business lacked the requisite good faith certification concerning the necessity of the loan request, loan forgiveness will no longer be an option and the business will be expected to pay the full amount of the loan back. If the loan is paid back, the SBA will not pursue administrative enforcement or referrals to other agencies. A business that is deemed to have received a PPP loan in bad faith will not lose the SBA’s loan guarantee.
It should be noted that the new guidance does not state how long a business has to repay the loan or whether repayment is expected to be made via a lump sum or in installments over a period of time.
For questions or for more information, please contact DBL attorneys Patrick Hughes or Katherine Simone.
