The Small Business Administration (“SBA”) published new guidance today easing their previous rules on potential criminal penalties. This new guidance applies separate rules to borrowers depending on whether the total PPP loan amount for the borrower and affiliates exceeds $2 million.
Borrowers of Less than $2 Million
The SBA has added a safe harbor that any borrower with less than $2 million of PPP loans on an affiliated basis will be deemed to have made the loan certification in good faith. That means any borrower who received less than $2 million needs no additional analysis to document that they were eligible for the SBA PPP loan. Note that if a group of companies with common ownership or control exceed the $2 million threshold in total, none of those companies qualify for this relief.
Borrowers of More than $2 Million
The SBA also modified their guidance for loans greater than $2 million. The SBA has stated that they will review each loan in this category to determine whether the borrower had an adequate basis for making the certification with the loan application. The previous guidance stated that borrowers lacking adequate basis would be subject to criminal penalties. The SBA guidance today significantly eases this result.
If the SBA review concludes that the borrower did not have an adequate basis for applying for the loan, that loan will now be ineligible for loan forgiveness. If the borrower repays the loan after receiving notification from the SBA, the SBA will not pursue administrative enforcement or referrals to other agencies.
If a borrower and its affiliates have obtained over $2 million in total PPP loans, it is still important to prepare documentation demonstrating that the loan was necessary. There are no clear guidelines on how to determine if the borrower had sufficient sources of funds to weather the crisis without the loans. In many cases, it will be unclear if the SBA will agree with the borrower’s conclusion on the necessity for the loan. Under the new guidance, a disagreement with the SBA on this conclusion will no longer subject the borrower to criminal penalties.
If you have any questions about PPP loans and this development, reach out to us at 303-989-7600.