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Safe Harbor for Paycheck Protection Program Loans Extended until May 14

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On May 5, 2020, the Department of the Treasury and the Small Business Administration (“SBA”) extended the safe harbor for repaying Paycheck Protection Program (“PPP”) loans from May 7 to May 14, 2020. The extension was announced in a Frequently Asked Question (“FAQ”), which is available here.  The FAQ also notes that the SBA will provide additional guidance on the certification of necessity for PPP loans before the extended period ends.

In a previously released FAQ, Treasury and the SBA provided initial guidance on the certification of necessity.  A PPP loan applicant is required to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  We covered the initial guidance on making that certification in a client alert.  Borrowers who may have misapplied the certification standard are permitted to repay their PPP loans before the end of the safe harbor, and they will be deemed by SBA to have made the certification of necessity in good faith.

Before the safe harbor period ends, a PPP borrower should ensure it has considered the appropriate standard for certification and fully documented its good faith determination that current economic uncertainty makes its PPP loan necessary to support ongoing operations.  Borrowers should also ensure they document other aspects of eligibility for PPP loans, including identification of affiliates under applicable SBA rules and Treasury guidance.  The SBA and Treasury continue to issue guidance on the program on a near-daily basis, and the guidance must be considered not only for eligibility, but also for loan forgiveness after the eight-week covered period.  For example, a new FAQ published May 5 suggests that applicants relying on the 500-employee standard for eligibility must count employees based outside the United States, though this guidance is contrary to an SBA interim final rule on the same standard for eligibility.  Borrowers with remaining questions or concerns should consult counsel before the extended safe harbor period closes.

Please visit our Coronavirus: Preparation & Response series for additional resources we hope will be helpful.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.