PPP Loans Under $2 Million Get A Significant Waiver From SBA

If your company received a loan of less than $2 million under the Paycheck Protection Program, the new message from the Small Business Administration is that you're OK.

In an addition to its lengthy list of FAQs, the SBA said Wednesday that all loans granted under that dollar threshold will be viewed as having met the "good faith" standard necessary under the PPP.

The clarification comes after Treasury Secretary Steve Mnuchin said in April that the SBA would be reviewing PPP recipients who received more than $2 million to be sure that they needed those funds given their large size. In particular, public companies that received the funds have been ordered to give them back. The sole known public transportation company that received one, Evo Transportation & Energy Services, had not indicated by Thursday whether it was returning its $10 million. (It had disclosed the receipt of the loan in an 8-K filing with the Securities & Exchange Commision in late April. No subsequent 8-K filing announcing the return of the funds has been filed).

"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 said in its updated FAQs.

Statistics released by the SBA for round 2 of the PPP, which began April 27, showed that just over 19% of the loans were over the $2 million cutoff, which means more than 80% don't need to worry about the certification.

The law firm of Scopelitis Garvin Light Hanson Feary sent out a notice on the change, laying out the concern that some smaller borrowers under the PPP faced. "Many PPP borrowers have been struggling with the new SBA mandate that borrowers revisit their loan application certification that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,'" Scopelitis said in its Law Alert. 

The law firm noted that the mandate was not part of the original CARES Act that set up PPP, but was handed down later "in response to much negative publicity surrounding high profile borrowers."

The $2 million threshold and the need to certify the need for those funds if a company got more than that is leading some loan recipients to give back the money. The deadline for doing that without triggering a "good faith" investigation was Thursday but has been pushed back to Monday.

"SBA has determined that this safe harbor is appropriate because borrowers with loans below [the $2 million] 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," the SBA said in its FAQs. "This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees."

The SBA also said the sheer number of loans under $2 million would be difficult to investigate for their good faith certification given the stretched resources at the agency. "This approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns," the agency said.

(There already has been discovery of potential PPP fraud involving a trucking company).   

Through last Friday, the SBA had approved 2,571,167 loans under phase 2 of the PPP, disbursing approximately $188.9 billion. Companies with less than $10 billion in assets got 32% of the disbursed loans, while companies with more than $50 billion got 53%. The tranche between those two got 15%.