On April 23, the Treasury Department released guidance that likely had many Paycheck Protection Program (“PPP”) loan borrowers concerned that they might not receive loan forgiveness, or, potentially worse, that they inadvertently made a false certification. In the April 23rd update to the guidance, the Treasury Department warned that “borrowers should review carefully the required certification that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’”
The guidance elaborated further, explaining that “[b]orrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.”
These warnings came on the heels of the controversies surrounding Shake Shack and Harvard University, which ultimately led both organizations to return or not accept their PPP loans.
The SBA initially provided borrowers a safe harbor by allowing them to repay their PPP loans by May 7, which was subsequently extended to May 14 and then to May 18. Then, on May 13, the Treasury Department expanded this safe harbor by providing protection to borrowers of less than $2 million. This most recent guidance provides that “[a]ny borrower that, together with its affiliates (for purposes of this safe harbor, a borrower must include its affiliates to the extent required under the interim final rule on affiliates, 85 FR 20817 (April 15, 2020)) 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.”
This updated safe harbor will provide great relief to the many small businesses that needed to borrow PPP loans, and will allow them to focus on running their business and getting back to work.
Attorneys in our Corporate Department at Lacy Katzen LLP are continuing to monitor the regulations and guidance related to the coronavirus in order to provide our business and banking clients with the most up-to-date information. Please give us a call at 585-454-5650 if you have any questions.