RIA Compliance Blog
Through updates to the Frequently Asked Questions maintained on its website, the Small Business Administration announced that it has extended the safe harbor date previously announced in Question 31 from May 7, 2020 to May 14, 2020, and that it intends to issue updated guidance relating to the safe harbor before May 14.
By way of background, on April 23, 2020 the SBA issued guidance relating to the certification that must be made by any applicant for a loan under the Paycheck Protection Program (PPP). Specifically, the SBA advised all applicants to consider the truthfulness of the certification in the application regarding the need for the loan to support business operations. The answer to question 31 clarified that all borrowers must carefully consider whether, in light of their current business and access to capital, the loan is necessary, provided the capital is available in a way that would not substantially impair the business. The SBA granted a “safe harbor” by which anyone who had received funds through a PPP loan will be deemed to have made the loan certification in good faith if they return the funds on or before May 7, 2020. A few days later the SBA made it clear that the answer to Question 31 applied to private as well as public companies, through the addition of Question and Answer 37.
The entire process has been sloppy and uncertain. Even the original certification required is vague. What exactly does it mean that a loan is necessary “to support the ongoing operations of the Applicant.” This question could have been avoided through the development of more thorough, objectively measurable eligibility standards, rather than through such a scatter gun approach.