Good-Faith Certification Under the Paycheck Protection Program

May 13, 2020


The U.S. Small Business Administration (SBA) and the Department of Treasury issued new guidance today regarding the good-faith certification that is required of loan applicants under the Paycheck Protection Program. The good-faith certification specifically states that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.”


In recent weeks, the SBA warned that these certifications would be subject to additional scrutiny and stated that all borrowers should be prepared to demonstrate the basis for its certification. The ambiguous language concerned many applicants on whether they would be deemed to meet the “economic need” requirement and the potential consequences of failing to do so.


However, the new guidance released today in the form of an additional Paycheck Protection Program Loans FAQ on the Department of Treasury website, alleviates that concern for many by establishing the following:

For borrowers of loans < $2 million

“Any borrower that, together with its affiliates, received Paycheck Protection Program 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 Paycheck Protection Program borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of Paycheck Protection Program 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.”

For borrowers of loans > $2 million

“SBA has previously stated that all Paycheck Protection Program loans in excess of $2 million, and other Paycheck Protection Program loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the Paycheck Protection Program Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding Paycheck Protection Program loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.”


As always, Lanigan Ryan will continue to monitor this evolving situation and add updates to our COVID-19 resource center as they become available. As an “essential” business in the state of Maryland, we will continue to work for clients to meet upcoming deadlines, while emphasizing the safety of both our clients and our team. Please know that your Lanigan Ryan team members are always available for questions.


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