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SBA Issues "Good Faith" Certification Guidance and Treasury Announces PPP Loan Audits SBA Issues "Good Faith" Certification Guidance and Treasury Announces PPP Loan Audits

SBA Issues "Good Faith" Certification Guidance and Treasury Announces PPP Loan Audits

As the SBA and participating lenders have transitioned from the first tranche of funding for the Paycheck Protection Program (“PPP”) established by the CARES Act into the second tranche, the Department of Treasury has continued to update its guidance and issue new guidance for borrowers and lenders participating in the program. Some of the recent guidance includes:
 
  • Even though, for purposes of the PPP, the CARES Act suspended the “no credit elsewhere” test defined in Section 3(h) of the Small Business Act and generally applicable to borrowers in the traditional SBA 7(a) loan program, a borrower still needs to certify in good faith that its PPP loan request is “necessary to support the ongoing operations” of the borrower.
  • To make a “good faith” certification, borrowers needs to take into account their “current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”
  • For example, “it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith,” and such a company would need to be able to demonstrate to the SBA its basis for making the certification in good faith.
  • A safe harbor for borrowers concerned about whether they can in good faith make this certification provides that any borrower who received a PPP loan previously but repays the loan in full on or before May 7, 2020 will be deemed to have made the certification in good faith.

In addition, on April 28, 2020, Treasury Secretary Steven Mnuchin stated publicly that all PPP loans in an amount of $2,000,000 or greater will be audited. It is advisable for borrowers who have already received PPP loans or for borrowers who have applied for but not yet received PPP loans to revisit their business analysis, which relates to this certification in light of this new guidance and determine whether it would be advisable to repay previously received loan funds in accordance with the safe harbor or retract an application for funds that have not yet been disbursed.

If you would like further information or to discuss this guidance, please contact Greg Gorospe or Chris Magill of Ice Miller’s COVID-19 Task Force.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
 
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