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SBA Updated Guidance Regarding Necessity

Written by: Patrick C. Closson

5/13/2020

On May 13, 2020, the United States Small Business Administration updated its Frequently Asked Questions guidance to provide guidance on the a borrower’s good-faith certification concerning the necessity of a loan under the Paycheck Protection Program (PPP).  The required certification that borrowers are required to make is that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  The SBA established a safe harbor for any borrower with an original principal amount of less than $2 million.  Borrowers 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.

For borrowers with original principal amounts in excess of $2 million, compliance with the necessity certification will be based on the borrower’s circumstances.  The SBA explained that borrowers with PPP loans in excess of $2 million are subject to the requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form.  The SBA did not provide any additional clarification, insight, or interpretation of the Final Rule or terms of the Application Form.

The SBA guidance provides that if the SBA determines that a borrower lacked an adequate basis for necessity of the loan, the SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness.  If the loan is repaid following receipt of notice for repayment, the SBA will not pursue an enforcement action.

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