Requirements for Good Faith Certification Concerning Necessity of PPP Loan

May 14, 2020

On May 13, 2020, the Treasury released FAQ 46 regarding the SBA’s review of borrowers’ required good-faith certification concerning the necessity of the loan request.

The Treasury’s FAQ addresses both borrowers whose loan is less than $2 million and those whose loan is greater than $2 million.

Loans Less than $2 million

The Treasury stated, “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.”

This statement removes the requirement for borrowers of less than $2 million to have to re-consider their certification of economic uncertainty based on the sources of liquidity available.

Loans Greater than $2 million

FAQ 46 does not provide clarification to borrowers with loans greater than $2 million of what must be considered as part of the certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

As previously stated in FAQ 39 as issued on April 29, 2020, the SBA will review all loans in excess of $2 million and other loans as deemed appropriate. FAQ 46 clarifies the consequences of the SBA ultimately deeming the borrower ineligible. In the event the SBA determines the borrower “lacked an adequate basis for the required certification concerning the necessity of the loan request,” the loan will be required to be repaid and no forgiveness will be provided. In the event the borrower repays the loan, the SBA has stated that they “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.”

Let Aprio Help

We view this as very important in assessing risk in what the ultimate cost may be if the SBA determination is different than the company’s.

To discuss your documentation of economic uncertainty or how to interpret and document spending requirements for PPP forgiveness with an Aprio SBA loan expert, reach out today.

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Disclaimer for services provided relative to SBA programs and the CARES Act
Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.

The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.

Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.

You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.

In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.

Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.

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About the Author

Tommy Lee

Tommy is the partner-in-charge of Aprio's Retail, Franchise and Hospitality group. His practice focuses on small and mid-sized retail, franchise and hospitality companies and real estate firms. Tommy has expertise in corporate structuring arrangements, multi-state and international tax planning, and corporate and individual tax mitigation.