PPP Safe Harbor is meant to promote economic certainty for PPP borrowers with limited resources

On May 13, 2020, the U.S. Treasury published PAYCHECK PROTECTION PROGRAM (PPP) LOANS Frequently Asked Question (FAQ 46). It addresses SBA review of a borrower’s required good-faith certification concerning the necessity of a loan request.

According to FAQ 46, the SBA and the U.S. Department of the Treasury provide a “good-faith certification safe harbor” for a borrower that, together with its affiliates, receives PPP loans of less than $2 million.   

Forgiveness of Indebtedness

The amount of PPP loans indebtedness qualifying for forgiveness under is an amount equal to the sum of payments made for the following expenses during the eight-week covered period beginning on the covered loan’s origination date:

• payroll costs
• payment of interest on any covered mortgage obligation
• payment on any covered rent obligation
• any covered utility payment

Borrowers with Loans under $2 Million

Research by  U.S. Department of the Treasury and SBA indicates that  borrowers with loans below $2 million  often lack access to sources of liquidity in the current economic environment. The $2 million safe harbor is intended to encourage and give a sense of confidence to those PPP borrowers to retain and rehire employees.

Borrowers with Loans over $2 Million

The SBA intends to audit/review all PPP loans greater than  $2 million for compliance with program requirements with respect to the Borrower Application Form.  The SBA is clear that it will seek repayment of PPP outstanding loan balances from a borrower that fails to demonstrate that its loan request was a good faith request for funds resulting from economic uncertainty in the Covid-19 economic environment. It will inform the lender that the borrower is not eligible for loan forgiveness if, during the SBA’s review, the borrower’s certification is deemed to fail the good faith requirement. 

Best to keep contemporaneous records and prepare now

SBA & U.S. Treasury regulations provide that knowingly making a false statement to get a loan under the PPP is punishable by law.  If the proceeds of a PPP loan are used for disallowed purposes, the U.S. government is empowered to pursue criminal charges against the borrower. The $2 million loan trigger for review and audit permits the SBA to focus its reviews and audits on larger loans. 

This does not mean that the PPP Loans below $2 million are protected from an SBA review and audit process.  On the contrary, the SBA and the U.S. Treasury encourage all PPP Loan Program borrowers   to maintain adequate books and records to justify their loan applications and usage of loan proceeds.       Consult your CPA Advisor.