The Bottom Line
The Bottom Line is where Klatzkin’s advisors provide analysis and insight into key developments in taxation, accounting, and other issues and how they affect businesses and individual taxpayers.

Paycheck Protection Program Loans – One Mystery Solved


May 14, 2020

The Paycheck Protection Program (PPP) has been a source of needed funding for many small businesses. The challenges presented by COVID-19 have resulted in drastically different business conditions that have left many on the brink of collapse. During the first round of funding, Pennsylvania businesses received $15B while New Jersey businesses received $9B in PPP funds. While most of the help went where needed, it was also discovered several publicly traded companies received loans ranging from $3M to $16M. The fact these companies received the loans when the PPP is specifically meant for small businesses was stunning. To address the issue, the U.S. Small Business Administration (SBA) made it clear they will review all loans above $2M to ensure requirements were met. Concurrently, they launched a safe harbor program allowing unqualified borrowers to return the loan with no questions asked. Since there was still a lack of comprehensive guidance, many have been wondering if they should return their PPP loan. The SBA recently updated guidance that addresses this concern and extended the safe-harbor deadline. Below is a summary of the key information.

SBA Good Faith Certification Review 

The guidance, which was provided as part of the PPP FAQ document published by the SBA, explicitly addresses how they will review a borrower’s good-faith certification concerning the necessity of the loan request. To address this issue, the SBA has created a safe harbor (FAQ #46) about the good faith certification review process. Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2M, will be deemed to have made the required good faith certification. The safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity. At the same time, it will allow the SBA to focus their limited resources on larger loans where it’s expected compliance efforts will yield higher returns.

Borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making a good-faith certification. If it is determined that a borrower lacked a sufficient basis for the required certification concerning necessity, the SBA will seek repayment of the outstanding balance. If the borrower repays the loan, the SBA will not pursue administrative enforcement, levy penalties or make referrals to other agencies. It is also important to note the determination concerning certification will not affect the SBA’s loan guarantee.

Safe Harbor Deadline Extended

The SBA also extended the safe-harbor deadline from May 14, 2020, to May 18, 2020, to allow impacted companies the opportunity to review the above-mentioned guidance and determine the next steps. The extension is automatic, and borrowers do not have to apply for it.

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This is good news for New Jersey and Pennsylvania businesses contemplating whether to return their loans out of concern about good faith certifications. If you have questions about the information outlined above or need assistance with a COVID-19-related tax or business continuity issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.

The above represents our best understanding and interpretation of the material covered as of the date of this post. Things are moving at a rapid pace, and as such, information is subject to change. This information is provided for informational purposes only and is not intended to be a substitute for obtaining accounting, tax, or financial advice from an accountant.

Photo by Pepi Stojanovski on Unsplash


About the Author

John focuses on helping with the tax needs of real estate, technology and manufacturing, distribution, and wholesale companies. He works with management and business owners to review their business plan, tax planning process, identify additional saving opportunities, and ensure compliance and reporting deadlines are met. Also, John helps educate clients about the new opportunities available...

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