After significant confusion over the past week due to some conflicting public comments from the U.S. Secretary of Treasury, the Small Business Administration today clarified the requirement for certification of necessity from borrowers for Paycheck Protection Program (PPP) loans. On May 13, the US Treasury in coordination with the SBA issued updated guidance in the form of a new FAQ to answer a key question for those Paycheck Protection Program loan recipients whose loans are under $2 million.

In Question/Answer #46, the SBA now indicates that "[a]ny borrower that . . . 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 entire FAQ may be viewed at Treasury's website here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

When making a PPP application, the CARES Act requires that borrowers certify in good faith that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.” There was some early suggestion that need was presumed but if the borrower lacked certification, it could potentially forfeit some loan forgiveness. As public scrutiny turned to large public corporations taking PPP funds, Treasury announced that public and private companies with loans over $2 million might expect audits and specific review of the certification of necessity.

Several public officials made recent comments that suggested certification could become an issue implicating the federal False Claims Act. This resulted in an extended safe harbor period and many borrowers choosing to return PPP funds rather than gambling on whether the threat of potential economic uncertainty for their businesses would qualify as "necessity."

Today's new FAQ should put those concerns, at least for borrowers of under $2 million, to rest. For borrowers of over $2 million, the new FAQ also contained some welcome news. It suggests that, even where a borrower is unable to supported the required certification upon SBA review, they will only be asked to repay the loans and will not be eligible for forgiveness. If the loan is repaid, the SBA will not pursue any administrative enforcement measures or refer to other agencies for enforcement.