SBA Safe Harbor Ruling Welcomed by Borrowers
Businesses that borrowed less than $2 million under the Paycheck Protection Program will get an automatic safe harbor, according to a Small Business Administration announcement issued May 13.
“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,” according to the SBA’s responses to FAQ’s about PPP loans.
The SBA had previously said it would review any PPP loans exceeding $2 million, according to the ABA Banking Journal.
As of May 13, the SBA said it had approved 2,686,493 loans totaling $192,565,254,187 in the second round of the PPP. The average loan size in the second round was $71,679, issued by 5,428 lenders. In round one, 1,661,367 loans totalling $342,277,999,103 from 4,975 lenders were approved, the SBA said.
Borrowers that received PPP loans for amounts over $2 million will be subject to review by the SBA for compliance with program requirements, including the certification of economic need. “If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness,” SBA said.
Borrowers who repay their loans after receiving notification from the SBA will not be subject to administrative enforcement or referrals to other agencies, the SBA said. Additionally, SBA’s determination regarding the necessity of the loan request will not affect the SBA loan guarantee.
SBA will also automatically extend until May 18 the safe harbor deadline to allow PPP borrowers “an opportunity to review and consider” the new guidelines. 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 said this safe harbor is appropriate because borrowers with loans below $2 million “are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.” The SBA also said “this safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.”
“Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, 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 borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.”
The SBA’s list of FAQ’s related to the PPP is frequently updated.