As small business owners begin looking towards applying for forgiveness of their SBA Paycheck Protection Program (PPP) loans, the Treasury Department issued highly sought-after guidance on May 13, providing a “safe harbor” from audits or penalties for companies that received a loan under $2 million.
The new guidance was posted in an updated version of PPP loan FAQs. The guidance states the following:
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. SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity.
Previous to this guidance, many companies were worried that under the “good faith” certification requirement on the PPP lending application, they would be subject to SBA or Treasury audits and potential penalties and damages. The PPP loan application requires the borrower to certify in “good faith” that they are requesting the loan due to “economic uncertainty,” and that they have no access to credit elsewhere. Traditional SBA loans require written documentation that the borrowed tried and failed to access credit from other sources.
With no real definition of “good faith” or “economic uncertainty” in a business environment that no one in either the private or public sector has seen before, business owners were concerned about their future legal exposure. While it defied credulity that the government would have the bandwidth to audit many loans or the political will to narrowly define “economic uncertainty” after it shut down the economy, business owners were nevertheless concerned.
This anxiety was further exacerbated by media reports that publicly traded companies and major brands like Shake Shack, Sweetgreen, the LA Lakers, and Harvard University received PPP loans when seemingly they would 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 down, leaving many billions of dollars left in the program, for better or worse. This is partly because smaller firms are finally in the queue for PPP loans, which is good, but the entire point of the program was to introduce liquidity into the economy and to protect workers’ wages. Therefore, having this money sit on the sidelines is not helpful to businesses, workers, or the U.S. economy.
Other Articles From AllBusiness.com:
It is worth noting that these larger brands met the requirements of the PPP program but still faced pressure from the court of public opinion. Arguably, the shutdown of the NBA season caused plenty of “economic uncertainty” for the Lakers, along with no real end in sight for social distancing, making attending sporting events unlikely well into the future. The team is not, however, a mom-and-pop corner shop, so perhaps the backlash was justified.
Published at Sat, 16 May 2020 23:46:16 +0000