With the deadline to return funds from the Paycheck Protection Program (PPP) extended to May 18, 2020, the Department of Treasury and Small Business Administration (SBA) released further clarification on what it means to have made a good-faith certification.
As a reminder, the PPP loans were a provision under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. A total of $670 billion was distributed through the SBA to help businesses affected by COVID-19. The loan is forgivable, to the extent that businesses use the funds appropriately and within eight weeks. To maximize loan forgiveness, businesses should use the funds based on the requirements and carefully document those uses, recognizing the potential impact of employee FTE and salary reductions, based on the Act’s stipulations.
In the most recent guidance issued on May 13, 2020, FAQ 46, the SBA and Department of Treasury determined that the safe harbor threshold for making a good-faith certification is $2 million. If your organization received less than the $2 million, you will be deemed as having demonstrated the necessity of the loan, without any further review.
If your organization received a loan greater than the $2 million, you may still have adequate reasons for needing the loan and making that certification in good-faith; however, be prepared to provide substantiating evidence to support the necessity of the loan. The SBA has previously stated all loans in excess of $2 million will be subject for review for compliance with the program. If in this review the SBA determines you (as the borrower) lacked an adequate basis for the certification in good faith, you have an opportunity to return the funds without penalty, at that time. Either way, if your loan amount is above $2 million, you will want to ensure adequate documentation is in place to demonstrate why the loan was a necessary in addition to the requirements for substantiating the loan forgiveness.
