A large contingent of Paycheck Protection Program borrowers no longer need to justify their loan.
The U.S. Treasury Department has eliminated the need for borrowers with loans of less than $2 million to prove they need PPP funding to offset economic uncertainty from the COVID-19 pandemic. Instead, those borrowers are now afforded a safe harbor by being automatically deemed to have made the loan application in good faith.
This change helps clarify a key PPP provision. It also may help alleviate fears from businesses that they are at greater risk for being audited or the subject of fraud charges by not meeting that certification.
The National Association of Professional Employer Organizations (NAPEO) says the SBA determined the safe harbor appropriate because borrowers with loans less than $2 million are generally less likely to have sources of liquidity in this economic environment than those who obtained larger loans.
Meanwhile, borrowers with a loan that exceeds $2 million still need to prove they sought the funds due to adverse economic conditions during the pandemic. The SBA can require this loan to be repaid if the organization determines the borrower didn’t need the money to offset economic hardship.
The additional scrutiny on loans over $2 million comes amid questions about whether some larger organizations actually need a PPP loan.
PPP loans are administered through the Small Business Administration and can be forgiven if at least 75 percent goes toward an employer’s payroll costs for at least eight weeks. The eight-week period starts on the date of the first disbursement of a PPP loan.
Frequently asked questions associated with the PPP loans are addressed here.
SBA data shows the average PPP loan is $206,000.
The lending program is a component of the more than $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, which was enacted on March 27.
Of that, $349 billion was allocated for PPP loans. That amount was exhausted in less than two weeks after lenders began accepting applications.
A separate Congressional spending bill later injected another $310 billion into the PPP lending fund.
PPP lending resumed April 27.
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