On May 13, 2020, the Small Business Administration (“SBA”), in consultation with the Department of Treasury, updated its Frequently Asked Questions (“FAQs”) regarding implementation of the Paycheck Protection Program (“PPP”), to specifically address the required good-faith certification with respect to an applicant’s economic necessity for PPP funds.

As we have discussed in previous alerts, in submitting a PPP application, borrowers must carefully review and certify in good faith that, among other things, “[c]urrent economic uncertainty makes [the] loan request necessary to support the ongoing operations of the Applicant.” Per prior alerts, borrowers who applied for a PPP loan prior to April 24, 2020 and who repay such loan in full by May 14, 2020, will be deemed by the SBA to have made the foregoing certification in good faith.

Through the updated FAQs, the SBA has stated that  any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification in good faith, on the basis that borrowers below the $2 million threshold are generally less likely to have had access to adequate sources of liquidity under the current circumstances. The FAQs further clarify that borrowers that have obtained PPP loans in excess of $2 million may still have an adequate basis for making the required certification but will be subject to SBA scrutiny for compliance with program requirements set forth in prior SBA Interim Final Rules and the Borrower Application Form.

In the event that the SBA determines that a borrower lacked an adequate basis for obtaining PPP funds based on economic necessity, the updated FAQs provide that the SBA will seek repayment of the outstanding balance of the PPP loan and will inform the lender that such funds are not eligible for forgiveness. They also clarify that if, after receiving such a notice from the SBA, the borrower voluntarily repays the loan, the SBA will not pursue administrative enforcement or referral by the SBA to other agencies regarding a potential violation of the loan necessity certification.

The updated FAQs also provide that any borrower that repays a PPP loan by the safe harbor deadline will be treated as though it had not received a covered SBA loan and, therefore, will remain eligible for the Employee Retention Credit under the CARES Act.

We are continuing to monitor as additional rules, interpretations and guidance are released by the SBA in connection with the PPP. Our attorneys are available to answer any questions with respect to the PPP, including the safe harbor and required certification detailed above, as well as other aspects of the program and related state and federal relief measures.


As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.