SBA’s Updated Guidance Regarding “Necessity Certification”


In the Small Business Administration’s (SBA) most recent Facts and Questions (FAQ’s), updated May 13th which can be found in further detail HERE, clarifies that ONLY loans over $2 Million will need to have further due diligence to verify that the loan was “necessary”.

FAQ 46, which asks, “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?” answers the question as to which loans the SBA will be reviewing for the necessity of the Paycheck Protection Program (PPP) loan.

FAQ 46 identifies, “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 in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, 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.”

This appears to be the SBA’s way of implying that any PPP loans under $2 Million should be accepted in good faith as “necessary”.

For those client’s with loans greater than $2 Million, the same guidance is still being recommended. Begin gathering documentation that will assist in justifying the “necessity” of the loan and prepare to explain what factors created the “economic uncertainty” that created the need for the loan.

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