Paycheck Protection Program (PPP) – What You Need to Know About the Certification for Economic Uncertainty for First Draw and Second Draw Loans

Introduction

On March 3, 2021, the Small Business Administration (SBA) updated its Frequently Asked Questions (FAQs) for Lenders and Borrowers. There are now 65 FAQs that address various issues impacting the PPP loan program. There is a separate set of FAQs specifically focused on PPP Loan Forgiveness.

This Alert is focused on FAQ 46, which was revised on March 3, 2021 to include a response for Second Draw loans. FAQ 46 responds to the following Question:

How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

The Answer is summarized as follows:

When submitting a PPP loan application, all borrowers must certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of First Draw PPP Loans with respect to this issue: Any borrower that, together with its affiliates, received First Draw PPP Loans with an original principal amount of less than $2 million will be deemed to have made the required certification in good faith concerning the necessity of the First Draw PPP Loan request .

Importantly, borrowers with First Draw PPP Loans greater than $2 million may still have an adequate basis for making the required good-faith certification based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million will be subject to review by SBA for compliance with program requirements. Borrowers with loans of $2 million or greater will be required to file Form 3509, Loan Necessity Questionnaire (For-Profit Borrowers). If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding First Draw PPP Loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the First Draw PPP Loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination related to the certification regarding necessity of the loan request.

For Second Draw PPP Loans, all borrowers must certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Because Second Draw PPP Loan borrowers must demonstrate that they have had a 25% reduction in gross revenues, all Second Draw PPP Loan borrowers will be deemed to have made the required certification concerning the necessity of the loan in good faith. Importantly, the loan amounts received by borrowers for First Draw and Second Draw PPP Loans will not be aggregated to determine the $2 million threshold described above.

The Anchin COVID-19 Resource Team continues to monitor ongoing updates to the PPP Program. To better understand how the changes impact your unique situation, please contact your Anchin Relationship Partner or our Anchin COVID-19 Resource Team at [email protected].

Disclaimer: Please note this is based on the information that is currently available and is subject to change.