The SBA published an updated version of the Frequently Asked Questions guidance today to add new Question No. 46 which clarifies the following:

• Any borrower with a PPP loan of less than US$2 million (in the aggregate taking into account affiliates who received PPP loans) will be deemed to have made the economic necessity certification in good faith.
• For borrowers with PPP loans of US$2 million or greater who do not return PPP funds prior to May 14, the SBA will review the loan for compliance with the program requirements set forth in the Interim Final Rules and in the Borrower Application Form.
• If the SBA determines that the borrower lacked an adequate basis for the necessity certification, the SBA will seek repayment of the PPP loan and the borrower will be ineligible for forgiveness. It is unclear whether repayment will be immediate or over the 2-year loan term.
• If the borrower repays the loan following the SBA’s determination, the SBA will not pursue administrative enforcement.
• The SBA’s determination that a borrower was ineligible based on the necessity certification will not affect the SBA’s loan guarantee to the lender.

If the SBA does not issue subsequent conflicting guidance, this appears to be a significant dialing back of prior SBA guidance. Declaring that all PPP loans with an aggregate principal amount of less than US$2 million will be deemed to have made the required good faith certification of loan necessity will eliminate much anxiety among small businesses and should materially increase the attractiveness of participation in the PPP program. Even with respect to loans over US$2 million, the express assurance that the SBA will not seek administrative enforcement or referrals to other agencies based upon a determination of a bad faith certification if the borrower repays the loan after notification is also an important development.

Note that this guidance appears to be applicable only to the necessity certification and that other criteria such as PPP eligibility, calculation methodology and/or loan forgiveness formulas will not benefit from this safe harbor.