On March 27, 2020, the US government passed the CARES Act in response to the COVID-19 crisis. Under the CARES Act, the Small Business Administration (SBA) is offering loans under the Paycheck Protection Program (PPP). On April 2, 2020, the SBA issued an interim final rule (Initial Rule) outlining the key provisions for implementing the PPP, including requiring each borrower to certify in the Borrower Application Form (SBA Form 2483) that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant."

On May 13, 2020 the SBA updated the PPP FAQS to provide guidance on how the SBA will review borrowers’ required good-faith certification concerning the necessity of their loan request.

The PPP Borrower Application Form (SBA Form 2483) requires all borrowers to certify in good faith that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." In the FAQs updated on May 13, 2020 (question #46), the SBA clarifies that it has provided a safe harbor for certain PPP loans. Specifically, 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 concerning the necessity of the loan request in good faith. The SBA determined that this safe harbor is appropriate because:

The SBA said that borrowers with loans above $2 million may still be able to make the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. The SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to SBA review for compliance with program requirements set forth in the PPP interim final rules and in the Borrower Application Form (SBA Form 2483) (see Practice Note, Road Map to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Paycheck Protection Program).

If the SBA determines during its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, the SBA will:

If the borrower repays the loan after receiving notification from the SBA, the SBA will not pursue administrative enforcement or referrals to other agencies based on its determination of the certification. Further, the SBA’s determination of the certification regarding the necessity of the loan request will not affect the SBA’s loan guarantee.

Previously, the SBA issued an interim final rule with a limited safe harbor providing that any borrower that receives a PPP loan based on a misunderstanding or misapplication of the required certification standard and repays the loan in full by May 7, 2020, will be deemed by the SBA to have made the required certification in good faith (see Legal Update, CARES Act: SBA Issues Further Guidance on Promissory Notes, Authorizations, Affiliation, and Eligibility Under Paycheck Protection Program). This deadline was extended to May 14, 2020 pending issuance of this guidance from the SBA on how they will review the required certification (see Legal Update, CARES Act: SBA Extends Limited Safe Harbor for Certification Concerning Need for PPP Loan Request).

For summaries of the SBA PPP, see:

For additional guidance from the Treasury Department, see: