ALERT: SBA Extends Deadline for Necessity Certification Safe Harbor to May 14, 2020

Late on May 5, 2020, the SBA published a new FAQ (FAQ Question #43) that extends the safe harbor deadline from Thursday May 7, 2020 to Thursday May 14, 2020.

The new FAQ is in response to the previous FAQS #31, #37 and #39 that state, in part, “Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by the SBA to have made the required certifications in good faith.” Thus, after May 7, 2020, when the SBA examines the applicable certifications, the SBA will not presume a “good faith” standard, and every loan will be subject to SBA review (and review by Treasury, the Internal Revenue Service, and the U.S. Department of Justice).

When a borrower files a PPP application, the borrower must certify in “good faith” that its PPP loan is a necessity (the "Necessity Certification"). The good faith certification is as follows: “(c)urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."

FAQ 31 says a borrower must make the Necessity Certification, “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.”

Unfortunately, the Treasury provides no guidance regarding the potential factors a business should weigh to determine if the PPP loan is necessary for ongoing obligations.

New SBA FAQ #43, provides as follows (as found here):

43. Question: FAQ #31 reminded borrowers to review carefully the required certification on the Borrower Application Form that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA guidance and regulations provide that any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. Is it possible for a borrower to obtain an extension of the May 7, 2020 repayment date?

Answer: SBA is extending the repayment date for this safe harbor to May 14, 2020. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor. SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.

As a result, while more information and guidance is needed, PPP loan borrowers who may have had concerns over the Necessity Certification and the impending safe harbor deadline now have some additional time to evaluate and make a determination on how to proceed with their PPP loan.

For more information, please contact your Knox Law attorney or one of our Business & Tax attorneys.

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