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Lawyer or Lender? Whom Should Borrowers Turn To For PPP Loan Advice?

May 11, 2020

By Marilyn Le Lodico, Esquire

Since publishing this article, the SBA has issued further guidance and extended the Safe Harbor Deadline. See updates here.

Many businesses welcomed the financing available under the SBA Paycheck Protection Program (“PPP”) that was created under the CARES Act. After navigating the application process and finally receiving the needed funds, PPP borrowers now have new concerns about the SBA’s declaration of a Safe Harbor Period for borrowers to return their loans.

The Safe Harbor Period

The PPP Borrower Application Form required applicants to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Following the issuance of the first round of PPP loans in mid-April, there was reporting that large publicly traded companies received significant PPP funding.  In response, the SBA issued guidance to add some clarity to the meaning of this certification, essentially stating that loans under the PPP are not for businesses that have “adequate sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

Recognizing that PPP borrowers may have made this certification in error, the SBA issued a regulation creating a Safe Harbor Period for borrowers to return the loans without penalty. Any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 14, 2020 will be deemed to have made the required certification in good faith.

Borrowers who are found to have not made this certification in good faith could be subject to criminal penalties, including fines under the False Claims Act which prohibits “knowingly making a false or fraudulent claim, making or using a false record or statement material to a false or fraudulent claim, in order to defraud the US government.”

Lawyer or Lender? Whom Should Borrowers Turn To?

Generally, the lender should be the primary resource for a borrower’s PPP loan questions because the lenders are tasked by the SBA with administering the program and issuing the loans.  However, questions involving the certification that the PPP loan request was necessary should be discussed with your lawyer.  The SBA’s Paycheck Protection Program Loans FAQ states that “Lenders may rely on a borrower’s certification regarding the necessity of the loan request.” This means that a lender does not have a duty to determine whether a borrower can make the required certification in good faith.  Additionally, it has come to our attention that lenders are notifying PPP borrowers to contact their lawyer due to the SBA’s updated guidance regarding the borrower’s certification. 

If you have a PPP loan and are considering repayment during the Safe Harbor Period, contact your lawyer before taking any action. We have a team of attorneys dedicated to assisting clients with their PPP loan questions and offer guidance on how to mitigate the risk of being subject to criminal penalties. Contact us online or call (412) 338-1100.

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