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 SBA to have made the required certification in good faith. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. New Guidance on PPP Certification (SBA’s FAQ #46) Posted on May 14, 2020 June 11, 2020 by Stan Doida. 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 SBA to have made the required certification in good faith. Recklessly disregarding the rules can give rise to liability. The Small Business Administration (SBA) and Treasury added an additional FAQ (#53) to its PPP Loans Frequently Asked Questions (updated December 9, 2020) to address concerns related to potential new PPP Loan Necessity Questionnaires [Form 3509 (For-Profit Borrowers) and Form 3510 (Non-Profit Borrowers)] that were released as drafts in late … In a PPP loan application, a borrower needs to certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations” of the borrower. The FAQs also provide that " [t]o further ensure PPP loans … This means that borrowers that received less than $2 million will be deemed to have made the certification in … We have noted the large number of companies that have appropriately reevaluated their need for PPP loans and promptly repaid loan funds in response to SBA guidance reminding all borrowers of an important certification required to obtain a PPP loan. Consider the steps you can take to help your organization qualify for PPP loan forgiveness. If they do so, they will satisfy the “good faith” certification requirement. The SBA will allow lenders to rely on certifications of the borrower to determine eligibility and use of proceeds of the PPP loan. Borrowers who want to reassess the validity of their certification can return the loan proceeds by May 7, 2020. The SBA’s latest guidance comes just one day prior to the SBA’s previously announced May 14, 2020 safe harbor deadline, under which borrowers who returned their PPP loan funds would be deemed to have made the certification in good faith. Treasury also indicated that PPP borrowers have until May 18, 2020, to return their loan proceeds without penalty if the company decided it could not certify in good faith that the PPP loan was “necessary” and promised additional guidance on this topic before May 18, 2020. 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 SBA to have made the required certification in good faith. While this guidance focuses publicly traded companies, it is unlikely to remain there. Violations of the False Claims Act could lead to treble damages and per-claim penalties in excess of $21,000. Revisiting the Certification. While the FAQ does not change the legal standard, it makes clear that the Treasury Department and SBA are increasingly focused on ensuring that borrowers have a demonstrated need for PPP funds. The U.S. Department of the Treasury recently updated their "Paycheck Protection Program Loans FAQ" with guidance regarding its review of a borrowers’ required good-faith certification concerning the necessity of their loan request.The PPP application requires a borrower to certify in good faith that "[c]urrent economic uncertainty makes this loan request necessary to … Streamlining of regular 7(a) program allows reliance on borrower certification. 2021 If they do so, they will satisfy the “good faith” certification requirement. Identify a loan: First Draw PPP Loans: If you have not received a PPP loan before, First Draw PPP Loans are available to you. Below is an overview of the challenges that an applicant may face in light of the new guidance with a particular focus on two of the most significant updates: the SBA's guidance on what constitutes a good faith certification to support the need for a PPP loan and the SBA's new $20 million cap applicable to corporate groups. Borrowers should note that the False Claims Act does not require specific intent to defraud the government. The SBA and the Treasury Department have indicated that they will continue to provide updated guidance on the PPP. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. The required certification was in place before. Businesses that have received PPP loans or that are considering applying should carefully evaluate their currently available cash balances, as well as whether additional financing may be available from their lenders and financial sponsors and on what terms. The new guidance, which applies to new loans and also to previously applied-for loans, comes in the form of an addition to the Treasury’s Frequently Asked Questions list for the PPP: Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan? Guidance consistent with the original purpose of the PPP • New safe harbor: – “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 … 632), meets the applicable SBA employee-based or revenue-based size The SBA has stated it will provide additional guidance on the PPP loan forgiveness process. These should include cash flow projections, balance sheet and other relevant financial statements, and the availability of alternative financing (including terms, timing and other factors with respect any such financing). The guidance states that the requirement to consider alternative liquidity is retroactive, but that a borrower that applied for a PPP loan before the issuance of this guidance may repay the loan in full by May 7, 2020, if it determines that its certification of “necessity” is no longer valid in light of the guidance. The takeaway from this new guidance and audit announcement is that any business which obtained a PPP loan should probably re-examine its good faith certification and whether and how it has been economically impacted by the COVID-19 pandemic and whether it has a true need for the PPP loan in order to support its ongoing business operations. 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 SBA to have made the required certification in good faith. Attorney advertising. Borrowers that fail to make their certifications in good faith may be subject to civil and criminal penalties, including liability under the False Claims Act. Under the new guidance, a business may no longer be considered PPP loan eligible, and the certifications they made in applying for such loan could be considered made in bad faith. These borrowers will be deemed to have made the preceding certification concerning the necessity of the loan request in good faith. On Thursday, April 23, 2020, the U.S. Small Business Administration (SBA), in consultation with the U.S. Department of the Treasury, added new guidance to their Paycheck Protection Program (PPP) FAQ document, located here, which addresses certain questions regarding PPP loans under the CARES Act. It was no surprise that the first $349 billion of PPP funds were exhausted in just two weeks. Specifically, before submitting a PPP application, all 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.” Borrowers 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. The Importance of Documenting the PPP Certification of Need Under SBA Guidance. Since the release of several FAQs and a safe harbor provision by the Treasury Department, a number of Paycheck Protection Program borrowers have expressed a fair amount of angst regarding their need for these funds and, indeed, tens of millions of PPP loan funds have already been returned. These should include cash flow projections, balance sheet and other relevant financial statements, and the availability of alternative financing (including terms, timing and other factors with respect to any such financing). Public companies with the ability to access public markets need to consider carefully whether they can make a need certification, as these types of borrowers are specifically called out in the FAQ. 1300 East 9th Street The required certification was in place before. The new guidance reinforces that borrowers should carefully analyze and be prepared to demonstrate to the SBA the need for a PPP loan. Certification of the Need for PPP Loan Funds. PPP applicants are required to make a number of certifications in connection with their applications, for example concerning their eligibility and the purposes for which they will use the loans. As guidance continues to be released, we’ll share updates. In both cases, the SBA stated that any borrower who applied for a PPP loan prior to the guidance and who repays its loan by May 7, 2020 will be deemed to have made its certification in … Lenders may rely on a borrower’s certification regarding the necessity of the loan request. The new guidance in Question 46 comes one day before the termination of the separate safe harbor period in which borrowers who had received PPP loan funds may repay those funds in full and be presumed to have made the Need Certification in good faith. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. On May 13, 2020, the U.S. Small Business Administration (SBA), in consultation with the U.S. Department of the Treasury, provided the following critical guidance on the good-faith certification requirement for Payroll Protection Program (PPP) borrowers (updated FAQ):Any borrower who, together with its affiliates, received PPP loans with an original principal amount … Borrowers must have considered “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.” This is the first time that SBA or Treasury has suggested the need to consider alternative liquidity. Second Draw PPP Loans: If you have previously received a PPP loan, … The guidance states the following: ... than $2 million will be deemed to have made the required certification … 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 SBA to have made the required certification in good faith. 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 SBA to have made the required certification in good faith. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. In relevant part, this Act increases by $310 billion the funds appropriated for the PPP established on March 27, 2020, by the CARES Act. will be deemed by SBA to have made the required certification in good faith.” The SBA’s latest guidance comes just one day prior to the SBA’s previously announced May 14, 2020 safe harbor deadline, under which borrowers who returned their PPP loan funds would be deemed to have made the certification in good faith. Choate attorneys are available to assist your business in analyzing eligibility for participation in the program. Suite 2400 The FAQ Guidance was re-emphasized in new rules that were issued on April 24, 2020 by the SBA. In both cases, the SBA stated that any borrower who applied for a PPP loan prior to the guidance and who repays its loan by May 7, 2020 will be deemed to have made its certification in good faith. Accordingly, it is up to the company to have the proper backup and documentation supporting the loan. When the SBA’s Paycheck Protection Program (“PPP”) opened for applications on April 3rd, it was so oversubscribed that it ran through its first $349 billion appropriation in just two weeks. Repayment date for the safe harbor extended from May 14, 2020 to May 18, 2020. Borrowers applying for a second draw Paycheck Protection Program (PPP) loan must make the same uncertainty certification (sometimes referred to as the “necessity certification”) that they made in connection with their first draw PPP loan: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Although the Small Business Administration (SBA) has not made any changes to the borrowers’ uncertainty certification … This guidance provides a safe harbor for any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million. The takeaway from this new guidance and audit announcement is that any business which obtained a PPP loan should probably re-examine its good faith certification and whether and how it has been economically impacted by the COVID-19 pandemic and whether it has a true need for the PPP loan in order to support its ongoing business operations. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. PPP Loan Certification Guidance – Should I Give the Money Back? Cleveland, Ohio 44114, 10 West Broad Street Attention to these certifications is extremely important, given the severe penalties that are possible for submitting false or misleading certifications to the government. ... upon request, the basis for its certification. The SBA goes on to provide that borrowers who applied for a PPP loan prior to the issuance of this guidance may repay the loan by May 7, 2020, and, by doing so, will be deemed by SBA to have made the required certification in good faith. Borrowers who want to reassess the validity of their certification can return the loan proceeds by May 7, 2020. [Now extended to May 14, per FAQ #43] Borrowers should be prepared to have their determinations of need scrutinized by the SBA -- both at the time of loan origination and upon application for loan forgiveness. In light of the new guidance, PPP loan applicants should carefully consider whether they are eligible borrowers, and PPP recipients should assess whether to retain the funds and document the necessity or return the funds. New Guidance on PPP Certification (SBA’s FAQ #46) Posted on May 14, 2020 June 11, 2020 by Stan Doida. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. that the borrower is eligible to receive a PPP loan, and that certification means that the borrower is a small business concern as defined in section 3 of the Small Business Act (15 U.S.C. Recently, the SBA … On May 13, 2020, the Small Business Administration (SBA) announced additional guidance regarding the good faith “necessity” certification for Paycheck Protection Program (PPP) loans in the form of a new Frequently Ask Question #46.. On April 24, 2020, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act. On April 24, 2020, the SBA incorporated this safe harbor provision into the new interim final rule. Although FAQ No. The FAQ’s discussion of public companies appears to be a reaction to the media backlash over the receipt of PPP loans by various public companies. ... upon request, the basis for its certification. Columbus, OH 43215-3469. One of the agencies’ primary mechanisms for conveying these requirements to borrowers has been through a regularly updated list of Frequently Asked Questions, many of which the SBA then formalizes through interim final rules that it publishes in the Federal Register. New PPP Loan Guidance: Borrower Certification Requirements and New Safe Harbor. Back in May, the SBA announced that borrowers would need to show economic uncertainty at the time they applied for their loan, if they took a PPP loan of $2 million or more. By Bruce L. Blasnik, CPA, CGMA, Partner. This guidance applies retroactively to PPP loan recipients. Consider the steps you can take to help your organization qualify for PPP loan forgiveness. What does the certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” mean in light of this new guidance? In a PPP loan application, a borrower needs to certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations” of the borrower. While the need for certification will depend on the facts and circumstances of each borrower, best practice would be a record demonstrating that a PPP loan would save the jobs of employees who are soon to be terminated or furloughed, as this would be aligned with the congressional intent of the PPP. The required certification was in place before. 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 SBA to have made the required certification in good faith. In short, for loans of less than $2.0 million to one borrower (together with its affiliates), the SBA will deem the borrower “to have made the … Written by Adam West on May 20, 2020. Today, the Small Business Administration (SBA) issued additional guidance regarding the required good faith certification of need by borrowers under the Paycheck Protection Program (PPP), providing safe harbor to all borrowers who received less than $2 million in loan proceeds.. The PPP has now come under public scrutiny, with news that loans bypassed small mom-and-pop shops in favor of larger businesses that may be more able to weather current economic conditions. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7 will be deemed by SBA to have made the required certification in good faith. Hardship certification for PPP loans under $2,000,000 The PPP loan application requires all applicants to make a hardship certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. The FAQ Guidance was re-emphasized in new rules that were issued on April 24, 2020 by the SBA. Since the establishment of this loan, the SBA has periodically issued PPP guidance to assist borrowers and lenders dealing with this new program. II. In light of the requirement’s retroactivity, the SBA has announced a safe harbor until May 7, 2020, for borrowers to return loans if any of the SBA’s subsequent guidance has changed the validity of their application certifications. Borrowers should carefully document their process for determining the need for the PPP loan in board minutes and other materials. PPP Loan Certification Guidance – Should I Give the Money Back? [Now extended to May 14, per FAQ #43] With this new guidance, any borrower, together with its affiliates, that received PPP loans in an amount less than $2 million is assumed to have made the necessity certification in good faith, which means the The SBA released new guidance on April 23. Although FAQ No. The SBA and the Treasury Department have indicated that they will continue to provide updated guidance on the PPP. Prior results do not guarantee a similar outcome. New Guidance from SBA on PPP Loan ‘Necessity’ Certification 04.26.2020 When the PPP Loan program was first announced and brought out through the banking system, it seemed to be prudent for most businesses to apply for the potentially forgivable loans being offered. certification that the PPP loan was “necessary” for ongoing operations. In the past few weeks, the SBA has been providing guidance to borrowers related to the PPP Loan. Borrowers who want to reassess the validity of their certification can return the loan proceeds by May 7, 2020. 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 SBA to have made the required certification in good faith. 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 SBA to have made the required certification in good faith. On April 23, 2020, SBA and Treasury added the following new FAQ concerning this certification, reproduced below in full: 31. Specifically, before submitting a PPP application, all 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.” Borrowers 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. Repayment date for the safe harbor extended from May 14, 2020 to May 18, 2020. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. The new guidance reinforces that borrowers should carefully analyze and be prepared to demonstrate to the SBA the need for a PPP loan. 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. This certification is required to have been made in good faith at the time of the loan application, even if subsequent developments resulted in the loan no … Connect with us, friend us, and track our blog. 1 If there are ambiguities in the language, courts will look to the legislative history in an effort to ascertain a drafter’s intent. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. While the FAQ directly addresses public companies, it is not limited to public companies, and all borrowers are required to take into account alternative capital resources. Any borrower that applied for a PPP loan prior to April 23 will be deemed to have made the necessity certification in good faith if the loan is repaid in full by May 14. The wording of the certification is vague: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of… Read More Hardship certification for PPP loans < $2,000,000 New Guidance from SBA on PPP Loan ‘Necessity’ Certification 04.26.2020 When the PPP Loan program was first announced and brought out through the banking system, it seemed to be prudent for most businesses to apply for the potentially forgivable loans being offered. Important PPP Loan Update: FAQ #46 Safe Harbor Guidance on Economic Uncertainty Certifications . Weston Hurd attorneys are available to assist your business in analyzing eligibility for participation in the program. Since the establishment of this loan, the SBA has periodically issued PPP guidance to assist borrowers and lenders dealing with this new program. Below is an overview of the challenges that an applicant may face in light of the new guidance with a particular focus on two of the most significant updates: the SBA's guidance on what constitutes a good faith certification to support the need for a PPP loan and the SBA's new $20 million cap applicable to corporate groups. The required certification was in place before. The Small Business Administration (SBA) has announced that new loans under this second tranche of PPP appropriations will commence April 27, 2020. As guidance continues to be released, we’ll share updates. Borrowers should carefully document their process for determining the need for the PPP loan in board minutes and other materials. Borrowers should be prepared to have their determinations of need scrutinized by the SBA — both at the time of loan origination and upon application for loan forgiveness. Demand for the second wave of PPP funding, $310 billion approved by Congress on April 23, 2020, has slowed down considerably. 31 referred only to public companies, on April 28, 2020, SBA effectively confirmed, via FAQ No. The updated FAQ is available here. Frequently Asked Questions for Lenders and Borrowers participating in the Paycheck Protection Program (PPP). Treasury releases additional guidance on the economic necessity certification for PPP loans. The new guidance reinforces that borrowers should carefully analyze and be prepared to demonstrate to the SBA the need for a PPP loan. As the PPP has evolved since its inception on March 27, so too have SBA and the  U.S. Department of Treasury’s articulation of its requirements. There are four key takeaways from this new guidance: The new guidance reinforces that borrowers should carefully analyze and be prepared to demonstrate to the SBA the need for a PPP loan. Treasury releases additional guidance on the economic necessity certification for PPP loans. Borrowers Must Certify that the PPP Loan Is “Necessary”. The answer applies to all borrowers. Urgent: New Guidance on PPP Loan Certifications. 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 SBA to have made the required certification in good faith. 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 SBA to have made the required certification in good faith. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. The new guidance was posted in an updated version of PPP loan FAQs. 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 SBA to have made the required certification in good faith. PPP Loan Program New FAQs Released: ‘Necessity’ Guidance Cooley Alert April 23, 2020 A key aspect of the CARES Act relief package is the now well-known Paycheck Protection Program (PPP) being administered by the Small Business Administration (SBA), which provides for loans of up to $10 million per small business applicant to be used on payroll, … The FAQs have been updated to include FAQ #53, which addresses a PPP loan borrower’s necessity certification. One such certification that has drawn particular scrutiny is the certification that the “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Many applicants have noted that this certification is vague and have sought guidance on it. SBA now requires borrowers to take into account alternative avenues of liquidity, but has not provided standards for determining availability. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. PPP Loan Program New FAQs Released: ‘Necessity’ Guidance Cooley Alert April 23, 2020 A key aspect of the CARES Act relief package is the now well-known Paycheck Protection Program (PPP) being administered by the Small Business Administration (SBA), which provides for loans of up to $10 million per small business applicant to be used on payroll, benefits, rent and other authorized … 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 SBA to have made the required certification in good faith. Suite 1400 PPP Loan Updates – Additional Guidance on PPP Need Certification. On Thursday, December 9, 2020, the Small Business Administration (SBA) and the U.S. Department of the Treasury updated the Paycheck Protection Program (PPP) Loan FAQs regarding the recently imposed loan necessity questionnaires.FAQ 53 was released to address why some PPP borrowers are receiving a For-Profit and Non-Profit Loan Necessity … The new guidance should make loan applicants – and recipients – cautious about taking a PPP loan that their business does not need. The Small Business Administration (SBA) just released updated guidance regarding the PPP loan certification through a new FAQ #46. PPP Loans: Further Guidance on the “Necessity Certification” Authored by Michael F. Maglio, Endicott Peabody, Taylor A. Shea, Jeffrey L. Volpintesta, and Barrett P. Wilson-Murphy All applicants for a loan under the Paycheck Protection Program (PPP) must certify that the current However, if a business repays the loan in full by May 7, 2020, the SBA will deem the business to have made its certification in good faith. Recipients of PPP loans less than $2 million who were worried about the “necessity” certification they made on the loan application, and whether they should return their loans before the safe harbor date, can breathe a sigh of relief. Choate, Hall & Stewart LLP. Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application.