This morning, the Small Business Administration (SBA) issued an update to the Frequently Asked Questions (FAQ), which are the guidance provided to borrowers and lenders about the PPP. There has been much discussion in recent days about the potential ramifications if the SBA determined that a PPP loan was not “necessary.” Today’s FAQs, question number 46, provides some comfort to both borrowers and lenders on the necessity issue.
Loans of Less than $2 Million
Today’s FAQs give some clarification about the “necessity” qualifying certification in the PPP loan application that will ease the minds of those borrowing less than $2 million and provide some guidance to those borrowing over $2 million. In essence, if a borrower of less than $2 million has made the certification of necessity required in the loan documents the loan is deemed to have been necessary. This new FAQ, while not rescinding any of the previous FAQs, clarifies the situation for borrowers. It states in relevant part “the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: 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 source of this is the FAQ issued today by the SBA and available at this link: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf . The relevant question is number 46.
To summarize, if you have not intentionally answered the question of necessity on your loan application inaccurately, you are likely safe from any SBA penalties or criminal action. Prior to this the fear was that a misstatement of necessity could subject the borrower to both fines of up $1 million and substantial jail time(1). The new FAQs alleviate that concern. This does not clarify the issue of loan forgiveness, which is still somewhat unclear. It only addresses the issue of what is deemed necessary.
We understand that the PPP and other COVID-19 relief programs can be confusing, and we are constantly watching for updates and clarification. You should always feel free to call our office with any question you have.
We hope you and yours are staying safe and well.
The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Patrick Neale & Associates. The reader should not act or refrain from acting based upon the information contained in this article without first contacting an attorney. The hiring of an attorney is a decision that should not be based solely upon advertisements or this article.
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(1) “I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.”