The Treasury Department and Small Business Administration on Wednesday extended the safe harbor repayment date with respect to earlier “economic certifications” made by borrowers under the Paycheck Protection Program from May 7 to May 14.
“Numerous prior borrowers have been evaluating whether to return the PPP funding they had received, taking into account potential criminal and civil liability risks the False Statements Act and False Claims Act in connection with their prior certification,” Eversheds Sutherland explains in a recent legal alert.
In light of updated frequently asked questions guidance, “the Treasury and SBA announced that for any borrower that previously applied for a PPP loan prior to April 23, 2020, SBA will view the certification to be made in good faith if the loan is paid in full by May 7,” Eversheds explains.
Treasury Secretary Steven Mnuchin and Small Business Administrator Jovita Carranza said in a joint statement in mid-April that SBA will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.
Regulatory guidance implementing this procedure will be forthcoming, SBA said.
Treasury and the SBA also announced that the “SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.”
State the Eversheds attorneys: “any borrower that applied for a PPP loan prior to the issuance of the April 23 guidance will be deemed to have made the economic certification in good faith if it repays it in full by May 14, 2020. In effect, such borrowers now have additional breathing room to evaluate their circumstances and options.”
The attorneys highlight that the safe harbor date “only relates to the economic certification and not to other potential inaccurate certifications borrowers may have made in haste to apply for PPP funding (e.g., on whether the business is “small,” taking affiliated entities into account). Nevertheless, as a practical matter, such borrowers also will probably face a lower likelihood they will face liability risks if they return such funds by May 14.”
The FAQ confirms that the employees of foreign affiliates of a potential PPP borrower must be taken into account in determining whether that borrower is an eligible small business, Eversheds said.
“Specifically, under the PPP’s affiliation rules issued in April 2020, the employees of borrowers, together with the employees of affiliated entities, must be aggregated to determine if they meet the employee size standard established by SBA. The answer to the FAQ makes it clear that, absent a waiver or the application of an exception, the employees of foreign affiliates of a potential PPP borrower must be considered in this evaluation as well.”