New SBA Guidance Addresses PPP Loan Concerns

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The Small Business Administration (SBA), in consultation with the Department of Treasury, released additional frequently asked questions this month to address issues raised by borrowers and lenders regarding Paycheck Protection Plan (PPP) loans. These loans were enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March. Two concerns clarified in the new guidance are of special interest to the many businesses who received these loans.

 

Good faith certification of necessity of loan requests

 

When a PPP application is submitted, a borrower must certify that the current economic uncertainty makes the loan request necessary to support the ongoing operations of the borrower. The new guidance addresses how the SBA will evaluate this good faith certification.

 

The SBA has determined that any loan with a principal amount of less than $2 million (including loans of all affiliates of the borrower) will be deemed to have been made in good faith. This safe harbor will protect borrowers less likely to have other sources of liquidity and enable the SBA to focus its review on larger loans with greater potential audit results.

 

For loans exceeding $2 million, if upon examination the SBA determines that the borrower lacked an adequate basis for the required certification, the borrower will be ineligible for any loan forgiveness. Further, the SBA will seek repayment of the loan balance. If the amount is repaid after the borrower receives notification from the SBA, no administrative enforcement or referrals to other agencies will be made.

 

Effect on loan forgiveness when employees decline an offer to rehire

 

PPP loans may be forgiven in whole or in part when businesses rehire employees who had been furloughed or laid off due to COVID-19. One provision requires a reduction in the loan forgiveness amount to the extent employees who were let go in the crisis are not rehired by certain dates. Borrowers wondered if they would still be penalized if they offer to rehire an employee, but that employee declines the offer to return.

 

If a borrower makes a good faith written offer of rehire and documents an employee's rejection of the offer, the employee's departure will not adversely affect the borrower's loan forgiveness amount. The offer must have been made for the same salary or wages and the same number of hours as the employee had received previously. Both parties should be aware that an employee who rejects an offer of reemployment may forfeit continued eligibility for unemployment compensation from the state.

 

During this crisis, your LMC professional is available if you have questions related to the latest updates on this topic.  All our prior Alerts are available on the Updates page of our website.

 

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