SBA Extends “Safe Harbor” Date for Returning PPP Loan Funds

Says Guidance Coming Before New Date

May 6, 2020

Mike Batts, CPA

 

The Small Business Administration (SBA) announced very late yesterday that it is extending to May 14 a “safe harbor” date for returning PPP loan funds and that it will be issuing guidance on its review process prior to the new safe harbor date.

In our Alert dated April 29, we noted that the SBA and the Treasury Department had announced intentions to scrutinize PPP loans for eligibility.  Amidst public criticism of borrowings by certain large and high-profile companies, the SBA and Treasury are focusing on the fact that loan applicants make a good-faith certification as part of the application process that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  As we stated in our April 29 Alert, the SBA and Treasury have announced intentions to perform a “full review” of every PPP loan in excess of $2 million in addition to other loans as appropriate to address whether borrowers appropriately made the required certification.  The SBA and Treasury had also stated that borrowers who determine that they were not eligible for a PPP loan may repay the funds by May 7, 2020 and not be penalized.

Our April 29 Alert provided additional context related to this matter.

The information, positions, and admonitions being disseminated by the SBA and the Treasury Department have caused significant concern among nonprofit organizations that have obtained or are in the processing of obtaining a PPP loan.  Of greatest concern is the fact that the SBA and Treasury have strongly stated and/or implied that penalties…and possibly criminal prosecution…could apply to borrowers who are determined not to have made the required certification in good faith.  While many, many borrowers pursued PPP loan funds based on the reality that the economic uncertainty for their organizations at the time of their loan application was extreme (and still is), the positions espoused until now by the SBA and Treasury have called into question the good-faith determinations made by borrowers…with the threat of examinations, penalties, and possible prosecution…without informing borrowers what standards will be used to assess the validity of their certifications.

Late in the day on May 5, 2020, the SBA issued an updated FAQ document with a new Q&A (#43) added, extending the safe harbor date for returning PPP loan funds to May 14.  The Question relates to whether the May 7 safe harbor date previously announced by the SBA can be extended.  Following is the Question and Answer:

Question: FAQ #31 reminded borrowers to review carefully the required certification on the Borrower Application Form that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA guidance and regulations provide that any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. Is it possible for a borrower to obtain an extension of the May 7, 2020 repayment date?

Answer: SBA is extending the repayment date for this safe harbor to May 14, 2020. 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 intends to provide additional guidance on how it will review the certification prior to May 14, 2020.

We note that the new Q&A item states that the “safe harbor” opportunity applies to borrowers who applied for a PPP loan prior to April 24, 2020.  It is not clear whether a similar opportunity will exist for borrowers who applied after April 23, given the fact that specific guidance regarding the SBA’s intended methods for reviewing eligibility have not yet been published.  The new Q&A item states that the SBA will issue guidance prior to the new safe harbor deadline addressing how it will review the certification made by PPP borrowers.  We hope that such guidance will be issued very soon, since the new safe harbor deadline is eight days from the writing of this article.  

When the new guidance is issued, our team at BMWL will work diligently to share information about it as soon as possible.

 

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