April 30, 2020

As SWACCA previously highlighted, a new “safe harbor” to avoid liability for the attestations in the PPP loan application were included in interim guidance issued by the Treasury Department and the Small Business Administration (SBA) a few days ago.  The safe harbor is targeted at borrowers who received Paycheck Protection Program (PPP) loans “based on a misunderstanding or misapplication of the required certification standard,” and gives them until May 7, 2020 to return PPP funds in full.

Since the issuance of this interim guidance, CNBC reported that Treasury Secretary Steven Mnuchin said that the federal government will conduct audits of companies who received PPP loans over $2 million to ensure the funds were properly allocated. Secretary Mnuchin has also stated in recent interviews that businesses who wrongfully claimed PPP funds could be held “criminally liable” if they do not return misallocated PPP funds. Additionally, Senate Small Business Committee Chairman Marco Rubio (R-FL) committed this week to make public the names of businesses who received funding through the PPP.  And Wednesday evening, Treasury Secretary Mnuchin and SBA Administrator Carranza issued the following joint statement:

“We have noted the large number of companies that have appropriately reevaluated their need for PPP loans and promptly repaid loan funds in response to SBA guidance reminding all borrowers of an important certification required to obtain a PPP loan.  To further ensure PPP loans are limited to eligible borrowers, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.  Regulatory guidance implementing this procedure will be forthcoming.”

The relevant provision of the safe harbor in last week’s interim guidance is included below for your reference:

“Limited Safe Harbor with Respect to Certification Concerning Need for PPP Loan Request

Consistent with section 1102 of the CARES Act, the Borrower Application Form requires PPP applicants to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Any borrower that applied for a PPP loan prior to the issuance of this regulation and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

The Administrator, in consultation with the Secretary, determined that this safe harbor is necessary and appropriate to ensure that borrowers promptly repay PPP loan funds that the borrower obtained based on a misunderstanding or misapplication of the required certification standard.”

If you have received or applied for a PPP loan, you should review this interim guidance and other recent developments related to PPP program oversight and integrity with your counsel.

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