SBA provides safe harbor for PPP loans under $2 million
Businesses that together with their affiliates accepted Paycheck Protection Program (PPP) funds of less than $2 million will be assumed to have performed the required certification concerning the necessity of their loan requests in good faith, according to guidance posted by the U.S. Small Business Administration (SBA) on Wednesday.
The guidance, provided as Question 46 in Treasury’s Q&As related to the PPP, states that borrowers with loans of more than $2 million may still have an adequate basis for making the required good-faith certification, based on their individual circumstances and the language of the certification and SBA guidance.
Congress established the PPP to provide relief to small businesses during the coronavirus pandemic as part of the Coronavirus Aid, Relief, and Economic Security Act, P.L. 116-136. PPP funds are available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans.
The forgivable loans were designed to help employers keep their employees paid and keep their businesses from succumbing to the economic hardships created by the coronavirus pandemic. An eligible recipient of a covered loan can receive forgiveness of indebtedness on the loan in an amount equal to the sum of payments made for the following expenses (subject to limitations) during the eight-week covered period beginning on the covered loan’s origination date: (1) payroll costs; (2) payment of interest on any covered mortgage obligation; (3) payment on any covered rent obligation; and (4) any covered utility payment. Section 1106(i) excludes from gross income any amount forgiven under the PPP.
According to the SBA, borrowers with loans below the $2 million threshold are less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers who obtained larger loans.
The SBA said the safe harbor will promote economic certainty for PPP borrowers with limited resources as they work to retain and rehire employees. The $2 million threshold also will help the SBA conserve its resources and focus its reviews on larger loans.
If the SBA determines during its review that a borrower lacked an adequate basis for certifying the necessity of its loan, the SBA will seek repayment of the outstanding PPP loan balance and inform the lender that the borrower is not eligible for loan forgiveness.
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