Updated PPP Guidance Deems Smaller Loans ‘Necessary’

Today, May 13, 2020, the Treasury Department issued a major revision to its interpretation of the Payroll Protection Program’s requirement that loans under the program be “necessary.”  On April 24, it had issued proposed rules regarding the required certification that the “current economic uncertainty makes this loan request necessary,” and provided a safe harbor for entities that may have certified this under a misapprehension of the standard to return funds that were obtained previously.  It emphasized that borrowers must “certify in good faith that their PPP loan request is necessary,” under the threat of potential criminal prosecution for certifications made without sufficient need.

In a near-complete reversal, it has now said, effectively, never mind.  With a newly provided FAQ answer, Treasury now says that all PPP loan recipients of amounts of less than $2 million “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”  While this gives additional comfort to those that accepted and retained loans in the past, it is too late and highly disappointing for those that, in good faith, considered the prior interpretation and decided to return their loans out of fear of the risk it could later be found to be unnecessary.

The potential risk for those with loans above the $2 million threshold has also been substantially pared back.  The updated guidance tempers the potential consequences to repaying the funds: “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 PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.”