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SBA Provides Safe Harbor Relief and Guidance on Good-faith Certification for PPP Loans

May 13, 2020

By: Mark Heimendinger, Nicole Cuccaro & Ferran Arimon

The Treasury and SBA just released new FAQ #46 that states that, "[a]ny 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 safe harbor should provide comfort for borrowers who received smaller loans.

The FAQ also clarifies that for borrowers who received loans in excess of $2 million, that, "[i]f 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 PPP 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. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee."

This is a significant improvement for borrowers in comparison to the Treasury’s and SBA’s earlier statements regarding eligibility. 

The link and full text of FAQ 46 are below.

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

Question: How will SBA review borrowers' required good-faith certification concerning the necessity of their loan request?

Answer: When submitting a PPP application, all borrowers must certify in good faith that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: 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.

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 PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP 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.

Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP 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 PPP 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. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.

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Mark

Getting the deal done requires flexibility, creativity, and efficiency. Clients and colleagues alike turn to Mark Heimendinger for his years of debt and equity finance experience, particularly in the commercial real estate and other asset-based arenas.


A seasoned pro who has seen the risks and iterations associated with both sides of a deal and all aspects of the capital stack, Mark understands that many contentious legal issues often mask a business concern – one that he likely has faced before. Even with the most complex and challenging negotiations, he is pragmatic, and focused on the client’s commercial goals.

Mark’s clients include issuers, borrowers, lenders, and underwriters. He has negotiated and executed a variety of transaction structures, including term and revolving credit facilities, public bond financings, public and private securitization transactions (including CMBS), mezzanine financing, equipment financing, 144A and Reg. D offerings, repo agreements, syndications, currency and interest rate cap and swap transactions, underwriting agreements, intercreditor agreements, joint ventures, and jurisdiction-specific non-recourse structures. Within the real estate space, Mark has covered multiple asset classes, including hotels and leisure facilities, office towers, senior living facilities, and multi-family residential buildings.

In addition to his Florida practice, Mark has years of both domestic and overseas “AmLaw 100” experience and has completed numerous cross-border transactions, mostly in the Asia Pacific region and in Europe.
Nicole

Nicole Cuccaro focuses her practice on real estate transactions, real estate development and commercial leasing.


Nicole's practice includes the acquisition, disposition, leasing and financing of commercial real estate in the retail and hospitality industries. Before she began her career in real estate law, her practice was focused on commercial and corporate litigation where she regularly represented lenders and business entities.

Ferran

Ferran Arimon is an attorney in the firm’s Commercial Real Estate Group. He focuses his practice on commercial real estate transactions, including the acquisition, disposition, financing, development and leasing of various property types, as well as construction financings and re-financings. His practice also includes corporate and securities law.

Ferran regularly advises buyers, sellers, developers, landlords and tenants in real estate transactions related to multifamily developments, industrial properties, office buildings, shopping centers, restaurants, hotels, retirement communities and vacant land. He also assists clients with leasing contracts, title review and survey analysis, contract negotiation for purchase and sale, due diligence, negotiation of transfer documents and finalizing of transaction closings.

Additionally, Ferran has experience in corporate and securities law, mergers and acquisitions, and tax law. He has worked with clients to structure financing transactions in compliance with federal and state securities laws, having represented both public and private companies in mergers, acquisitions, capital raising, and corporate governance matters. He has also counseled clients on a broad range of tax issues and business planning issues from entity selection and formation to dissolutions.

Prior to law school, Ferran was an analyst at real estate investment management company in Miami. His role centered around underwriting, valuing, and identifying acquisition opportunities for distressed or value-add commercial and residential real estate acquired through joint ventures, direct Investments and non-performing loans portfolios.

Fluent in Spanish, Ferran regularly writes articles on a variety of emerging legal issues.

Ferran earned his law degree from the University of Florida Levin College of Law and his MBA from the University of Florida Warrington College of Business. Prior to law school, he received his undergraduate degree from Babson College, where he majored in finance and was a member of the men’s tennis team.

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