New Treasury guidelines provide safe harbor for PPP loans


By Neil Hare

As small business owners begin to seek forgiveness for their loans from the SBA’s Paycheck Protection Program (PPP), the Treasury Department issued much sought-after guidance on May 13, offering a “sphere security ”against audits or penalties for companies that received a loan under $ 2 million.

The new guidance was published in a updated version of the FAQ on PPP loans. The guide states the following:

Any borrower who, together with its affiliates, has received PPP loans with an initial principal amount of less than $ 2 million will be deemed to have provided in good faith the required certification regarding the necessity of the loan application. The SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have access to adequate sources of liquidity.

Prior to this directive, many companies feared that under the “good faith” certification requirement of the PPP loan application, they would be subject to SBA or Treasury audits and penalties and damages. potentials. The PPP loan application requires the borrower to certify in “good faith” that he is applying for the loan because of “economic uncertainty” and that he does not have access to credit elsewhere. Traditional SBA loans require written documentation indicating that the borrower has tried and failed to access credit from other sources.

Without a real definition of “good faith” or “economic uncertainty” in a business environment that no one in the private or public sector has seen before, business owners worried about their future legal risk. Although he challenged the credulity that the government had the bandwidth to audit many loans or the political will to narrowly define “economic uncertainty” after the economy closed, business owners were nonetheless concerned.

This anxiety has been further exacerbated by media reports that publicly traded companies and big brands like Shake Shack, Sweetgreen, LA Lakers and Harvard University have received PPP loans when they apparently have access to capital elsewhere. Many of these companies and organizations returned the funds, while others did not. The negative press also had a chilling effect in which the flow of loan applications and amounts requested slowed, leaving several billion dollars in the program, for better or for worse. This is partly because small businesses are finally in the queue for PPP loans, which is good, but the purpose of the program was to introduce liquidity into the economy and protect workers’ wages. . Therefore, leaving that money on the sidelines is not good for businesses, workers or the US economy.

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It should be noted that these big brands met the requirements of the PPP program but were still under pressure from the court of public opinion. Arguably, the stopping of the NBA season has caused a lot of “economic uncertainty” for the Lakers, as well as no real end in sight for social distancing, making participation in sporting events unlikely in the future. The team isn’t a mom-and-pop corner store, however, so maybe the backlash was justified.

Based on the new guidelines, businesses with loans of less than $ 2 million no longer have to worry about an audit or possible penalties for failing to meet the “good faith” requirement. And, while loans over $ 2 million may be reviewed or verified, there will be no harsh penalties or criminal charges other than outright fraud. The worst-case scenario would be a request for repayment of the loan with interest.

The new guidelines explained that for all borrowers, it could always be verified that the loans were being used appropriately to meet the forgiveness requirement: 75% for payroll and 25% for expenses such as rent, payments. mortgages, utilities and interest payments, tracked for 8 weeks immediately upon receipt of funds. If the lenders or the government determine that the borrower did not use the funds as such, part of the loan could potentially not be canceled and could be converted into a 2 year loan at 1% interest. However, banks don’t want to carry small 1% loans on their balance sheets, nor does the government want to burden small businesses with debt, so the overwhelming majority of those loans would have to be canceled if they are. administered correctly.

Despite this much needed safe harbor, many questions remain about the cancellation of PPP loans, which will hopefully be answered in future Treasury guidelines. Meanwhile, on May 15, the House of Representatives adopted the Emergency Omnibus Health and Economic Recovery Act (HEROES), a new relief bill worth $ 3 trillion. The legislation seeks to change some of the requirements for PPPs that have sparked objections from small business owners. This includes extending the current 8 week period to use the funds to 24 weeks instead; reduce the payroll requirement by 75%; the extension of the PPP program until the end of the year; and make 501c (6) organizations such as chambers of commerce and small media companies also eligible for PPP. And, if Republicans in the Senate do what they want, any new legislation will include a new haven for potential lawsuits against Covid-19-based companies as well as no additional funds for the PPP until the current cycle. is exhausted and its benefits measured.

A further relief measure on the horizon is the Main Street Loan Program. It will look like a traditional loan and will have a process of applying to lending institutions with standard due diligence. The loan amount will be at least $ 500,000, so it is aimed at large companies. The eligibility requirements for the Main Street program are still evolving.

In the meantime, this new safe harbor will hopefully make many more small businesses feel more confident in applying for and receiving PPP funds, with less worry about the problems ahead.

RELATED: EIDL PPP and SBA Loan Waiver: 10 Things Small Businesses Should Know

I am a lawyer and president of Global Vision Communication, an agency specializing in strategic communications, marketing and advertising for professional associations, nonprofits, coalitions and businesses. I specialize in small business policy and have led small business awareness campaigns for large organizations such as Visa, MasterCard, US Chamber of Commerce, and US Department of Commerce. I am a writer, a member of a creative think tank, and an expert in communication and business strategy. I am a sought-after speaker at business events on Marketing and Communications, both inside and outside the Beltway. I am also the author of two novels, An Animal Cries and God in Hell’s Kitchen.

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