The Trump administration said firms that took loans of less than $2 million under the COVID-19 small business relief program can count on a break in the form of not having to prove to auditors that the pandemic had a negative impact on their business.
“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,” the SBA and Treasury said in the new guidelines.
Besides assuming smaller borrowers have less access to liquidity amid the pandemic-driven economic crunch and so a “safe harbor” for them is justified, the SBA and Treasury said giving such firms a break will help them keep and rehire employees.
“This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees,” the two agencies said.
The move will also let federal authorities focus their limited auditing capacity on bigger players.
“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,” the SBA and Treasury said.
Also, companies that took loans over the $2 million mark will still have the opportunity to make a case that they took the loan in good faith. They will be subject to a compliance review to check if they met PPP requirements. Companies that are unable to prove they need the loan will have to repay the balance and they will be ineligible for loan forgiveness.
Also, firms that took loans of more than $2 million that they didn’t need will be allowed to repay the money without legal consequences. This reverses an earlier warning that the government could pursue such loan-takers criminally.
The PPP program extends loans of up to $10 million, which are forgiven if firms spend the money mostly on paying workers, who must be kept on the payroll for eight weeks.
The idea behind the program was to encourage companies not to lay off staff amid the outbreak and so minimize the social impact of the pandemic. Also, because firms would spend less time on re-hiring workers and re-booting their businesses once stay-at-home orders are lifted, the policy would support a robust economic rebound.