Just one day before the May 14 safe harbor date for borrowers to repay loans under the Paycheck Protection Program (PPP), the Small Business Administration (SBA) issued additional guidance regarding the good faith “need” certification that applicants are required to make in order to obtain a PPP loan. Today’s guidance indicates that the SBA will implement a second safe harbor for borrowers that, together with their affiliates, receive PPP loans with an aggregate original principal amount of less than $2 million. It also states that the SBA will not pursue further enforcement based on the “need” certification against borrowers that repay their PPP loans following a determination by the SBA that the “need” certification was inappropriate.

The PPP loan application requires all applicants to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Pursuant to a formal safe harbor originally announced by the SBA on April 23 and extended by an Interim Final Rule issued on May 8, borrowers that had applied for a PPP loan prior to April 24 would be deemed to have made the “need” certification in good faith if they repaid their PPP loans in full by May 14, 2020. In an additional FAQ issued late on May 13, the SBA indicated that this original safe harbor would be extended through May 18, 2020. In an additional FAQ issued late on May 13, the SBA indicated that this original safe harbor would be extended through May 18, 2020. In an additional FAQ issued late on May 13, the SBA indicated that this original safe harbor would be extended through May 18, 2020.

Borrowers with Loans of Less than $2 Million

In FAQ No. 46 issued this morning, the SBA states that it will apply a second limited safe harbor for any borrower that, together with its affiliates, received PPP loans in an original principal amount of less than $2 million. For those applicants, the SBA will deem the required “need” certification to have been made in good faith.

For purposes of this safe harbor, affiliates will be determined as required by the SBA’s interim final rule on affiliates, published April 15, 2020.

Borrowers with Loans of $2 Million or More

FAQ No. 46 confirms that all PPP loans in excess of $2 million will be subject to review by the SBA for compliance with program requirements and continues in pertinent part:

“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.”


After weeks of confusion and uncertainty around various aspects of the PPP (including, importantly, the threshold eligibility of many borrowers, based on recent SBA guidance and public commentary by Treasury Secretary Steve Mnuchin that seemed to take an aggressive approach toward interpreting the required “need” certification), FAQ No. 46 indicates that it is intended to provide certainty to the vast majority of PPP borrowers who have received less than $2 million in PPP loans that their good faith “need” certifications will not be second-guessed by the SBA.

For borrowers with larger loans who otherwise meet the PPP eligibility criteria, FAQ No. 46 indicates that the SBA’s enforcement efforts with respect to the “need” certification will be limited to the denial of loan forgiveness and an obligation by the borrower to promptly repay the loan following any notification by the SBA of a determination of ineligibility. This new guidance will likely provide comfort to borrowers who were uncertain as to how to interpret the “need” certification in light of recent guidance and statements from the Treasury Department and members of Congress but do objectively satisfy the other PPP eligibility criteria (such as SBA size standards), which are not covered by this safe harbor.

However, borrowers should be mindful of the limitations of FAQ No. 46. Importantly, FAQ No. 46 does not carry the force and effect of law and does not modify the language of “need” certification itself. Additionally, FAQ No. 46 does not provide assurance that other law enforcement agencies will also abide by the safe harbor. Accordingly, while the SBA may act in accordance with the enforcement position expressed in FAQ No. 46, this FAQ does not insulate borrowers from potential liability in litigation or enforcement actions challenging a “need” certification that are pursued by other law enforcement agencies, including the Special Inspector General for Pandemic Recovery, the Department of Justice, and the Securities and Exchange Commission, or qui tam relators.

Additionally, the SBA had previously taken the position in FAQ No. 45 that a business that repays its PPP loan by the May 14 safe harbor deadline “will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit [under Section 2301 of the CARES Act].” Borrowers who do not repay their PPP loans by May 18 will likely not be eligible for the employee retention tax credit under Section 2301 of the CARES Act in the event that loan forgiveness is later denied based on an inappropriate “need” certification.


This alert is intended to provide information, insights and understanding of the authors as of the date this alert was published. The rules and available guidance regarding the PPP are regularly being refined and clarified by the SBA and other agencies. As a result, any specific content of this alert may be affected by the evolving nature of applicable guidance. PPP participants will need to evaluate and draw their own conclusions and determine their approach relative to participation in the PPP based on their business’s specific circumstances, cash flow forecast, and strategy. Readers are encouraged to contact legal counsel to address the legal implications and the specific impact of the CARES Act on your business, including your participation in the PPP.

The Bass, Berry, and Sims CARES Act Task Force has been closely monitoring developments related to the unprecedented governmental assistance programs enacted in response to the COVID-19 pandemic. If you have questions about the PPP and your business, please contact the authors or your relationship partner at the firm.