May 9, 2020 – After warning companies who received loans under the Paycheck Protection Program (“PPP”) to review their good-faith certifications of the necessity of such loans and providing a safe harbor period for the repayment of loans in Frequently Asked Questions (“FAQs”) issued on April 26, 2020, the Small Business Administration (“SBA”), issued additional guidance on May 13, 2020, detailing its review process concerning a borrower’s required good-faith certification of necessity made in a PPP loan application.

The new guidance comes in the form of newly-issued FAQ #46. For loans under $2 million, FAQ #46 provides that any borrower (together with affiliates) who received a loan under $2 million “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” The SBA said that this “safe harbor” is appropriate for loans under this amount because such borrowers are “generally less likely to have had access to adequate sources of liquidity in the current economic environment…”

With respect to borrowers who obtained loans in excess of $2 million, the SBA said that providing a safe harbor for borrowers of less than $2 million will free up resources to focus its review of larger loans. The SBA further indicated that such borrowers may have an adequate basis for making the good-faith certification, but noted that if the SBA audits such borrowers and determines that a borrower did not have an adequate basis for making the certification, SBA will seek repayment of the loan balance and will inform the lender that the borrower is ineligible for loan forgiveness. Under these circumstances, if the loan is repaid after notification, the SBA will not pursue administrative enforcement or referrals to other agencies.

Thus, it appears that the SBA, following repayment under the circumstances noted above, will not pursue civil money penalty remedies and will not send the matter to the Department of Justice (“DOJ”) for possible criminal prosecution or other enforcement actions such as under the False Claims Act (“FCA”). It is doubtful, however, that this guidance would bind other agencies.

Lastly, the SBA, in FAQ # 47, has extended the repayment date under the safe harbor provision from May 14, 2020, to May 18, 2020. This is an automatic extension, which unfortunately comes too late for many businesses who had already decided to repay their loans to avoid even the risk of civil or criminal penalties.


Because legal developments pertaining to COVID-19 are constantly evolving, we recommend that our clients call the Kullman Firm attorney(s) with whom they work for the most current guidance on these matters.

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