PPP Economic Need Update

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Some of the provisions below have been modified by the Paycheck Protection Program Flexibility Act (PPPFA) which was signed into law on June 5, 2020. Click here for our article on PPPFA.

Update on PPP Economic Need Issue

By: Chris Anderson, Shareholder

Good news for those Paycheck Protection Program (PPP) borrowers whose loan amount is under $2 million!  On May 13, 2020, the SBA posted an update to their Frequently Asked Questions document that 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.”

This certification about the necessity of the loan is commonly referred to as the “economic need” provision, and many borrowers were concerned when previous SBA guidance implied that companies with access to other sources of liquidity to support ongoing business operations might run afoul of the  certification.  Each borrower was required to make the economic need certification on the PPP loan application.  This new safe harbor provides welcome relief for this matter.

The SBA had previously announced that loans of $2 million or more would be subject to review.  The new guidance provides that, if the SBA determines that the borrower lacked an adequate basis for its certification of economic need, the SBA will seek repayment of the loan balance and inform the lender that the borrower is not eligible for forgiveness.  If the borrower repays the loan after SBA notification, the SBA will not pursue administrative enforcement.  This, too, is good news for borrowers of larger amounts who may have been concerned about enforcement actions.

This area continues to change rapidly.  We are committed to keeping you informed as developments arise.  If you have questions, please contact Chris Anderson at canderson@maloneynovotny.com or another M+N team member, or use this online contact form.