Surprise! PPP Loan Rules Change Again – But For the Good
After the news of so many public companies getting Paycheck Protection Program loans that didn’t need them, the SBA announced new “needs based” loan standards. The SBA stated that only companies that had a financial need for the loan were eligible for funding. It suggested that companies failing to meet these standards would be deemed to have NOT certified their need “in good faith” and might be subjected to penalty. The SBA did not provide much in the way of guidance for companies to determine if they were truly “in need” or not. These new standards differed significantly from previous loan standards and guidance.
In addition, the SBA suggested that businesses that already had received (and probably spent) loan money pay it back within two weeks in order to avoid penalties. The net effect of these announcements was to scare the heck out of businesses that had already received and spent some of the loan funds. You may have even received a scary letter like this one from your PPP Loan lender. Without specific guidance, business owners were left to guess whether they were “in need” and could not only obtain loan forgiveness but also avoid penalties from the government. Just what businesses struggling during the COVID pandemic needed — something else to worry about.
Yesterday morning, the SBA issued new guidance: “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?” The answer depends on the size of the loan. For borrowers of less than $2 million the answer to FAQ #46 states (emphasis added):
“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.”
In other words, loans of less than $2 million are deemed to be “necessary to support the ongoing operations” of the business as the certification required. We interpret this answer to mean recipients of loans less than $2 million do not need to return their loans because of concerns regarding their certification.
For businesses with a loan in excess of $2 million, the SBA will keep you on tender-hooks. Unless the SBA issues additional guidance, you’ll have to hope that you can provide an “adequate basis” for your certification of need. The news isn’t all bad though. The SBA did remove the scare of penalties. If it is determined that there was no adequate basis for the need, the consequence is simply no loan forgiveness. As long as the business can repay the loan, there will not likely be a penalty.