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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

May 13, 2020

COVID-19: Safe Harbor for Borrowers of PPP Loans Under $2 Million

In its May 13 guidance on the Paycheck Protection Program (PPP), the Small Business Administration (SBA) clarified how it will review an applicant’s good-faith certification concerning the “necessity” of its loan request. When submitting a PPP application, all applicants must certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

In consultation with the US Department of the Treasury, the SBA has determined that any borrower, together with its affiliates if applicable, that received a PPP loan with an original principal amount of less than $2 million will be deemed to have made the required certification concerning necessity in good faith. For purposes of this safe harbor, a borrower must include its affiliates to the extent required under the Interim Final Rule published on April 15.

According to the SBA, this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment. Additionally, this safe harbor will promote economic security as PPP borrowers with fewer resources attempt to retain and rehire employees and will enable the SBA to conserve its limited amount of audit resources for larger loans.

For loans greater than $2 million that don’t satisfy the safe harbor, borrowers may still have an adequate basis for making the required good-faith certification based on their individual circumstances. These loans, however, will be subject to review by the SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the borrower application form. If, in the course of its review, the SBA determines the borrower lacked an adequate basis for the required certification concerning necessity, the SBA will seek repayment of the outstanding loan balance and will inform the lender that the borrower is ineligible for forgiveness.

Additionally, if the borrower repays the loan after notification from the SBA, the SBA won’t pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. It’s important to note the SBA’s finding concerning the certification will have no effect on the SBA guaranty of the PPP loan.

If you have any questions regarding the content of this alert, please contact Roger Cominsky, Financial Institutions & Lending Practice Area chair, at; Danielle Katz, associate, at; or Samantha Podlas, associate, at

We also have a specific team of Barclay Damon attorneys who are actively working on assessing regulatory, legislative, and other governmental updates related to COVID-19 and who are prepared to assist clients. Please contact Yvonne Hennessey, COVID-19 Response Team leader, at or any member of the COVID-19 Response Team at

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