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Volume XII, Number 336


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SBA Revises Certification Rules: Safe Harbor for Loans Under $2 Million, Larger Loans Still Subject to Audit

The Small Business Administration has issued new guidance regarding the certification of necessity under the Paycheck Protection Program. Now, borrowers who received loans for less than $2 million -- roughly 98% of PPP loans to date -- will automatically “be deemed to have made the required certification concerning the necessity of the loan in good faith.” In contrast, loans over $2 million are still subject to audit by the SBA for compliance. However, if the SBA determines a borrower did not make the certification of necessity in good faith, the borrower may be able to avoid liability by simply repaying the loan.

The SBA previously announced that it would audit all PPP loans over $2 million, and those under $2 million as appropriate, to determine whether borrowers certified in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” That guidance threatened potential civil and criminal enforcement for those who were found to have not certified in good faith.

The newest guidance clarifies that only loans over $2 million will be subject to audit regarding the certification of necessity, and that the consequences for borrowers who received loans over $2 million, but lacked an adequate basis for the necessity certification, could be less severe.

If the SBA determines that a borrower lacked an adequate basis for the certification, the SBA will seek repayment of the loan and the borrower will be ineligible for forgiveness. The SBA will notify the borrower of its determination, and if the borrower repays the loan after receiving the notification, the SBA now says it will not pursue an enforcement action or refer the matter to other agencies for enforcement with respect to the necessity certification.

Nevertheless, borrowers with loans greater than $2 million should still take steps to ensure that the good faith basis for their necessity certification is properly documented and be prepared to respond in the event of an SBA review.

© 2022 Bracewell LLPNational Law Review, Volume X, Number 135

About this Author

Rachel goldman, complex commercial litigation, attorney, Bracewell law

Rachel Goldman is an experienced litigator in both federal and state courts, at the trial and appellate levels. Her practice focuses on complex commercial matters, including claims for breach of contract, post-acquisition disputes, class actions, False Claims Act cases, insurance coverage disputes, contested bankruptcy matters, challenges under the Commerce Clause and the Supremacy Clause, government regulation, securities litigation, construction law, First Amendment and libel actions. Additionally, Rachel's tenure as in-house counsel provides a valuable perspective of...

David Shargel, commercial litigation, white collar criminal defense attorney, Bracewell Law firm

David Shargel is a senior counsel in the trial section of Bracewell's New York office. His litigation practice focuses general commercial litigation, internal investigations and white collar criminal defense. Mr. Shargel's practice also involves issues surrounding electronic discovery and data management.

Mr. Shargel has litigated complex commercial disputes involving contract, business torts, insurance coverage, technology and fraud, and has litigated disputes concerning federal and state constitutional law, including the Commerce and Due...

David Ball, Intellectual Property Attorney, Bracewell Giuliani, law firm

David J. Ball is a partner in Bracewell's litigation practice. David has experience in the areas of intellectual property litigation (patent, copyright, trademark, trade dress, and IP theft), bankruptcy litigation, and state and federal appeals.  He also regularly represents financial services firms (international banks, regional banks, hedge funds, etc.) in complex commercial disputes.  David routinely draws on his litigation experience to counsel clients in all manner of business transactions, including risk analysis, contract formation, mergers and acquisitions, and...

Thomas Kokalas, White Collar Defense, Attorney, Bracewell, law firm

Thomas Kokalas is a partner in Bracewell's New York office, where he is a member of the firm's White Collar Defense, Internal Investigations and Regulatory Enforcement practice group. He represents corporations and individual clients in federal and state white collar criminal and regulatory cases, internal investigations and compliance reviews.

Mr. Kokalas has represented individuals and corporations in investigations and prosecutions by the Department of Justice, the SEC, the Manhattan District Attorney's Office and the New York State Attorney...

Joseph T. Lasher Complex Commercial Litigation Attorney Bracewell New York, NY

Joseph Lasher focuses his practice on complex commercial litigation matters and contractual disputes. He advises clients through all phases of the litigation process, including motion practice, trial, and settlement.

Joseph previously served as judicial intern to the Honorable Nanette Laughrey of the U.S. District Court for the Western District of Missouri. He also worked at the Duke Health Justice Clinic as a certified law student, representing clients in disability cases.