New Safe Harbor for PPP Loans

Diane Glover

May 13, 2020

PPP Loan Eligibility – NEW Safe Harbor is BORROWER FRIENDLY

There has been much discussion surrounding PPP loans and recent SBA guidance related to loan eligibility. In simple terms, the SBA had announced preliminary guidance that loan recipients would be required to certify a true necessity for the loan, and the borrower did not have adequate sources of liquidity from other sources. In addition, the SBA announced that they were going to audit all loans in excess of $2 million with regard to this requirement. They established a deadline of May 14, 2020 for borrowers to return loan funds in order to avoid these additional required certifications.

New Guidance

On May 13, 2020, the IRS issued additional guidance that was very friendly to borrowers in contrast to their prior position. The current position establishes a safe harbor for loans of less than $2 million. All loans less than $2 million will be automatically deemed to have made the required certification in good faith concerning the necessity of the loan.

In addition, borrowers with a loan of $2 million or greater that do not satisfy this safe harbor can still meet the certification requirement based on individual circumstances. If the SBA does audit a loan and determines that the borrower lacked an adequate basis for accepting the loan, the only ramification is repayment of the loan. This contrasts with statements previously made by SBA officials, which included financial penalties and even criminal action.

Economic Certainty for PPP Borrowers

Borrowers with PPP loans of less than $2 million no longer need to be concerned about repayment by that deadline with regards to building a case to certify necessity for the loan. Borrowers with PPP loans of more than $2 million now have the opportunity to build their case with the knowledge that the worst-case scenario is repayment of the loan.

Please contact your Kirsch CPA relationship manager if you have additional questions at (513) 858-6040.