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SBA and Treasury Release Updated Guidance on "Current Economic Uncertainty"

Borrowers of Less Than $2 Million Considered to Have Certified in Good Faith

Earlier today, the Small Business Administration (“SBA”) in conjunction with the Department of Treasury provided updated guidance regarding a borrower’s certification that  “current economic uncertainty makes this loan request necessary…” .  The SBA had previously announced that this guidance would be forthcoming so that applicants would be able to decide whether to return loan proceeds prior to May 14, 2020.

The new guidance is provided in Question 46, “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

The answer provided indicates:

  • If the applicant, together with its affiliates, has an original principal amount less than $2 million, then it is automatically presumed that the current economic uncertainty made the loan request necessary and no further action will be required.
  • If the applicant, together with its affiliates, has an original principal amount greater than $2 million, then the SBA will review the application, most likely at the time forgiveness is requested, to determine whether or not the applicant had an adequate basis for making the good-faith certification.
  • If the SBA determines that the applicant(s) lacked an adequate basis for the necessity of the loan, the SBA will seek repayment of the outstanding PPP balance from the applicant and inform the lender that the borrower is not eligible for loan forgiveness.  So long as the borrower repays the loan after receiving notification from the SBA, the agency will not pursue administrative enforcement or referrals to other agencies.

Unfortunately, the SBA failed to provide any details regarding how to determine whether an entity has an “adequate basis” for making the good faith certification.  As a result, OADA continues to encourage dealers who received PPP loans in excess of $2 million to prepare a response for your lender and/or the SBA discussing your economic need of those funds.  For more detailed guidance, see OADA’s previous alert HERE.  The question is partially republished below, but can be found in its entirety HERE


How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: 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.

Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA 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. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.


As you can see, this guidance provides some, but not all, answers to help dealers navigate this issue.  OADA continues to monitor this evolving situation and will provide more updates as they become available.  For any additional questions or concerns, please contact OADA legal counsel, Sara Bruce or Matt Chacey, or talk with your PPP lender.

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