PPP Loans Under $2 Million Qualify for Safe Harbor

The Small Business Administration (SBA) issued additional guidance yesterday stating that recipients of Paycheck Protection Program (PPP) loans with an original principal amount of less than $2 million are presumed to have made the required economic necessity certification in good faith. In newly-added Question #46 to its PPP Frequently Asked Questions, the SBA stated that borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.

As part of the PPP application process, an authorized representative for each applicant is required to provide a certification that “[c]urrent economic conditions makes this loan necessary to support the ongoing operations of the Applicant.” CAPLAW previously noted that the SBA issued guidance expanding the standard of economic necessity that applied to a borrower’s PPP loan certification. That guidance stated that borrowers must assess their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.

The safe harbor for PPP loans under $2 million is welcome news, as many Community Action organizations that received PPP loans have raised questions about what they need to show to meet the certification, and how the economic necessity standard applies to their loans. The prior guidance was particularly confusing because the example provided in the SBA guidance referenced public companies that have access to capital markets, which nonprofit organizations typically do not. This newly-announced safe harbor provides needed clarity and gives smaller PPP borrowers greater economic security as they retain and rehire employees.

This News Flash is part of the Community Services Block Grant (CSBG) Legal Training and Technical Assistance (T/TA) Center. It was created by Community Action Program Legal Services, Inc. (CAPLAW) in the performance of the U.S. Department of Health and Human Services, Administration for Children and Families, Office of Community Services Cooperative Agreement – Grant Award Number 90ET0467-03. Any opinion, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the U.S. Department of Health and Human Services, Administration for Children and Families.

The contents of this news flash are intended to convey general information only and do not constitute legal advice. Any communication through this publication or through CAPLAW’s website does not constitute or create an attorney-client relationship. If you need legal advice, please contact CAPLAW or another attorney directly.