SBA Establishes New “Safe Harbor” within Paycheck Protection Program

May 14, 2020
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After some uncertainty, the SBA clarified on Wednesday that it will not investigate borrowers who received Paycheck Protection Program loans of $2 million or less to determine if the loans were properly certified as “necessary” to support the borrower’s ongoing operations. This new “safe harbor” provision, the latest development in the program’s short and tumultuous history, is good news for many small business owners who may have held concerns about their compliance with the program’s certification requirements.

Originally intended as a lifeline for small businesses and nonprofits with 500 or fewer employees, the PPP sparked criticism after large, publicly traded corporations like Shake Shack and Ruth’s Chris Steakhouse received loans and dried up much of the program’s funds. In response to the outcry, the SBA issued an interim rule on April 28th, announcing that it would be selectively conducting audits to ensure that loans complied with the PPP’s “necessity” requirement and offering borrowers a limited window of time in which they could return the money without penalty.

However, this news concerned many business owners who believed their loans to be necessary, but feared the SBA might disagree. Exactly how necessary must the loan have been to qualify as “necessary” enough?

Although the SBA’s new “safe harbor” provision doesn’t answer this question, it does reduce the number of owners who need to worry about it. In question no. 46 of the latest update to its FAQ page, the SBA declared that “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 reasoned that loans below this $2 million threshold were more likely to come from small businesses who have fewer resources at their disposal for obtaining quick infusions of liquidity compared to the larger businesses who disproportionately requested larger loans.

For those with PPP loans of $2 million or more, the deadline to return your loan penalty-free has been extended to May 18th. We encourage you to reach out to your financial advisors and legal counsel regarding any specific PPP questions. Moving forward, we will continue to keep you informed of any further developments that could affect the wellbeing of your organizations during this rapidly-changing time. Your workforce is our priority.

The K|W|W Team

 

Tom Green 330-697-0815 tgreen@kwwlaborlaw.com
Scot Harvey 330-212-5208 sharvey@kwwlaborlaw.com
Olivia Hochschwender 330-338-9114 ohochschwender@kwwlaborlaw.com
Michael Karst 260-519-1311 mkarst@kwwlaborlaw.com
Meg Matejkovic 330-524-4546 mmatejkovic@kwwlaborlaw.com
John McKenzie 330-714-5459 jmckenzie@kwwlaborlaw.com
Amanda Smith 716-450-4745 asmith@kwwlaborlaw.com
Ken Stump 330-416-3641 kstump@kwwlaborlaw.com
Julie Trout 330-618-0639 jtrout@kwwlaborlaw.com
Jim Wilkins 330-714-2186 jwilkins@kwwlaborlaw.com