IMPORTANT UPDATE – PPP Loan Program

May 13, 2020

Today (May 13, 2020) the Department of the Treasury updated their Frequently Asked Questions regarding the Paycheck Protection Program. FAQ #46 has been added to the existing FAQ’s to help clarify the potential audit risk for PPP borrowers.

The PPP loan application requires that the borrower certify in good faith, among other assertions, that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Within previous guidance released, it was revealed that PPP borrowers may be subject to subsequent audits to verify that this certification was made in good faith and the business did, in fact, need to request the loan. This included analyzing other sources of available liquidity to determine if the business had other reasonable sources to support ongoing operations. If determined that the certification was inappropriate, it’s presumed the borrower would be required to return all loan proceeds plus interest. However, it was unclear if such a borrower could also be subject to civil or criminal penalties for this deemed false assertion.

Below are a few key takeaways:

The most important takeaway is that borrowers of PPP loan less than $2,000,000 now have a safe harbor for this certification. All borrowers of PPP loans (including affiliate businesses, if applicable) with an aggregate, original principal amount under $2,000,000 will be automatically deemed to have made the required certification of need in good faith. This appears to limit the audit risk of PPP applicants in this category to factual certifications and amounts reported (payroll costs, employee count, etc.).

If the SBA (Small Business Administration), upon audit of a borrower over $2,000,000, determines that the borrower lacked adequate basis to certify the PPP loan was needed to support ongoing operations, the SBA will seek repayment of the loan proceeds in full and the loan will not be eligible for forgiveness. NOTE: The SBA has previously confirmed that all PPP loans over $2,000,000 will be automatically subject to an audit.

However, if the borrower repays the loan once notified by the SBA of an adverse determination, the SBA will not pursue administrative enforcement or referrals to other government agencies.

There are still several questions that have yet to be answered, including the expected time frame of SBA audits, which agency or agencies will be performing these audits, and to what scope certain civil or criminal penalties may apply if a borrower does not meet the safe harbor, falsifies other claims or amounts, or does not return the loan upon notification from the SBA. However this update should give significant comfort to any businesses that have already received a PPP loan or are considering applying for one, especially if they meet the safe harbor requirements above.

Please contact us if you need any assistance or have additional questions.