SBA: Any PPP loan less than $2 million deemed ‘necessary’

The Treasury Department and Small Business Administration clarified its rules today regarding small business owners’ need to certify the necessity of receiving loans through the Paycheck Protection Program

One requirement to qualify for forgiveness of a PPP loan is that all borrowers must certify in good faith when submitting their applications that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” Details of how to certify that uncertainty were unclear, especially given the understanding that the SBA would be closely reviewing PPP loans. If the SBA determines that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, the SBA would seek repayment of that loan.

Now, according to the Frequently Asked Questions on the U.S. Treasury Department’s Website (the entire list can be found here), any loan 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.

The reason for this $2 million threshold is that the SBA will assume that any borrower with a loan less than $2 million is less likely to have access to adequate sources of liquidity than borrowers who obtained larger loans. This clarification will also “promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees,” according to the Treasury Department FAQs.

Furthermore, setting a $2 million threshold will help the SBA be more efficient in auditing the larger PPP loans.

The Treasury Department also noted that borrowers with loans greater than $2 million may still have an adequate basis for making the required good-faith certification, based on individual circumstances.

If the SBA determines in the course of a review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, the 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 the SBA, the 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. The SBA’s determination concerning the certification regarding the necessity of the loan request will not affect the SBA’s loan guarantee.

While the clarification of the certification of need rules is welcome news, we continue to stress the importance of documenting all PPP loan expenses. As you may know, we are offering a service to help our clients track these expenses and to prepare a package to assist with the application for loan forgiveness. Please contact us today if you have any questions