The Small Business Administration has once again updated their guidelines regarding the good faith certification made by businesses that received a PPP loan. On April 23, 2020, the SBA added a guideline in their published list of Frequently Asked Questions addressing businesses that received a PPP loan but that also have sources of funding outside of the PPP loan. Under this guideline, a business that received a PPP loan must determine whether, due to other sources of funding available to the business, the PPP loan is considered “necessary to support the ongoing operations” of the business. If the business determines the loan is not necessary under this standard, the business is presumed to have applied for the PPP loan in bad faith.
Businesses originally had until May 7, 2020 to return the full principal amount of the PPP loan and avoid any penalties. However, that deadline has been extended and businesses now have until May 14, 2020 to return the full principal amount of the loan. There has been no guidance issued on what penalties might be at stake.
Businesses with a PPP loan of greater than $2 million should expect to be audited for this standard of necessity upon applying for loan forgiveness. However, businesses with PPP loans of less than $2 million should be aware of these guidelines as the SBA has stated that the Department of the Treasury will also review “other loans as appropriate”.
The SBA plans to provide additional guidance prior to May 14, 2020 regarding how these PPP loans will be reviewed under this new standard.
For questions or for more information, please contact DBL attorneys Patrick Hughes or Katherine Simone.
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