July 6, 2020

Volume X, Number 188

July 06, 2020

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COVID-19 von Briesen Task Force Resource: Further SBA Guidance on the Necessity Certification

On April 23, 2020, the Small Business Administration (SBA) provided borrowers that received Paycheck Protection Program loans until May 7, 2020 to reassess whether they had a good faith basis to certify that “the uncertainty of current economic conditions makes necessary the loan request to support ongoing operations of the eligible recipient.” On May 5, 2020, the SBA extended that deadline to May 15, 2020. Along with setting the deadline, the SBA promised additional guidance prior to borrowers needing to make a final decision on potentially returning proceeds received. On May 13, 2020, the SBA provided that guidance in the following FAQ 44:

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.

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 the 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.

©2020 von Briesen & Roper, s.cNational Law Review, Volume X, Number 134

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About this Author

Andrew Phillips, von Briesen Roper Law Firm, Milwaukee, Litigation Law Attorney

Andy Phillips has dedicated his career to assisting local governments, school districts and businesses with their most challenging legal problems. Andy brings innovative solutions to the organizational, operational and personnel problems facing local governments and has been a leader in creating consortiums efficiently in areas such as Medicaid programming, human services and long term care. Andy serves as General Counsel for the Wisconsin Counties Association, a position which he has held for the past decade. 

Andy is also an experienced...

414-287-1570
Bob Simandl, Von Briesen Law Firm, Waukesha, Labor and Employment Law Attorney

Bob Simandl is a Shareholder with over 30 years of experience advising clients on a wide range of employee benefit, labor and employment law issues. This experience enables Bob to advise clients on human resources (HR) law issues taking into consideration all areas of opportunity and vulnerability, including the litigation of HR law-based claims. He has extensive experience in advising employers in employee benefit plan design, issues associated with ill and injured workers, labor negotiations, and multi-employer health and welfare plan and pension plan vulnerability and compliance.

(262) 923-8651
Jeffrey E. Mark, von Briesen Roper Law Firm, Milwaukee, Healthcare Law Attorney

Jeff Mark is a member of both the Health Care Practice Group and the Business Practice Group. Jeff advises hospitals, multi-institutional health care systems, physician groups and specialty providers regarding a variety of transactional health care related matters including affiliations, acquisitions and divestitures; fraud and abuse; Stark; physician agreements; and equipment and office space leasing arrangements.

Jeff also advises individuals, corporations, and partnerships regarding general corporate transactional matters...

414-287-1514
Robert A. Mathers, Von Briesen Law Firm, Oshkosh and Madison, Corporate and Tax Law Attorney

Bob Mathers is a Shareholder and Chair of the Tax Section at von Briesen. Bob also is the firm’s Business Practice Group Leader. 

Bob provides legal and business advisory services to Midwest businesses and their owners with a focus on closely-held businesses, estate planning and private wealth services. He is a Certified Public Accountant and is AICPA Accredited in Business Valuation (ABV) and is an AICPA Personal Financial Specialist (PFS). He leverages his prior experience as one of the country’s largest CPA firm’s National Tax Director, and...

920-232-4855
James Wawrzyn, von Briesen Roper Law Firm, Milwaukee and Waukesha, Corporate and Healhcare Law Attorney

James Wawrzyn counsels clients on commercial contract negotiation, mergers and acquisitions, supply-chain alternatives, and general corporate matters. James collaborates with clients to identify and implement their priorities. For each project, James has a results-oriented approach. He continuously engages the stakeholders to recognize and actively address obstacles to finalizing priority items.

James is skilled in the preparation and negotiation of technology-based agreements such as master services, development and licensing...

414-287-1476