SBA Grants Safe Harbor to PPP Recipients Under $2 Million; Extends time to Return Money to May 18. SBA Inspector General Says SBA Q&As May Be Invalid.

Two important developments have come from Washington today; 1) US Department of Treasury/SBA sent out an “Answer” that grants Safe Harbor to PPP recipients who received under $2 Million and; 2) SBA Inspector General says some of the US Treasury/SBA positions violate the CARES Act.  Further, SBA has extended the repayment date for the safe harbor return of funds discussed in my earlier articles to May 18, 2020. 

I.   US Department of Treasury/SBA sent out an “Answer” that grants Safe Harbor to PPP recipients who received under $2 Million and discusses loans over $2 million. 

The SBA, on the DOT website's Frequently Asked Questions Page, posted question #46 giving a "safe harbor" to those companies whose received PPP loans under $2 million dollars: 

• Question: How will SBA review borrowers required good-faith certification concerning the necessity of their loan request? 
• Answer: 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. 
• SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.

 The Guidance continued with a discussion of loans over $2 million dollars stating, “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.” See below:

• 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. 

Thus, assuming you have a good faith belief in your ability to qualify for the loan and can legitimately argue your economic uncertainty, as discussed in mu earlier articles, it would seem there would be no penalty for keeping the money now and waiting to see what the SBA says later, assuming "will not pursue administrative enforcement or referrals to other agencies" means no penalty. As with everything the SBA has done lately, it is not completely clear.

II.   SBA Inspector General issued a “Flash Report” stating the US Treasury/SBA positions in the Q&As violate the CARES Act -19. 

In a 39 page “Flash Report” the SBA Inspector General of the SBA stated that a number of SBA’s positions could violate the CARES ACT including SBA’s requirement that at least 75% of the PPP loan be used for payroll, which is not discussed in the statute and the 2 years to repay any non-forgiven loan proceeds is in contradiction to the Act which discusses 10 years. https://www.sba.gov/sites/default/files/2020-05/SBA_OIG_Report_20-14_508.pdf p5. While the SBA IG only recommends reevaluation of these contradictions of the Act to assess the potential impact of these percentages and loan years, it shows that the SBA Guidance we have been discussing since the PPP loan’s creation may be changed and/or not be upheld by a the courts interpreting the CARES ACT requirements.

III.   SBA has extended the repayment date for the safe harbor return of funds to May 18, 2020.

SBA is extending the repayment date for the safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46 discussed above. 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. https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf #47.

If you have any questions about the implementation of the above question, or any issue with your employees, please do not hesitate to contact me. Battling the novel coronavirus is difficult for everyone. We are here if you need us. 

Should you have questions regarding the above, or any other employment & labor law matter, please contact me ([email protected] or 516.248.1700).

With best wishes for your, and your family’s, health and safety.

Regards,

Gregory S. Lisi, Esq.

Partner in Charge of the

Employment & Labor Law Departments

Forchelli Deegan Terrana, LLP

333 Earle Ovington Blvd., Suite 1010

Uniondale, New York 11553

Phone: 516-248-1700

Fax: 866-786-3783

E-Mail: [email protected]

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