Letter to the Hon. Steven Mnuchin, Secretary of the Treasury and the Hon. Jovita Carranza, Administrator of the U.S. Small Business Administration - Huizenga Leads Effort to Protect Small Businesses, Improve Safe Harbor Provision

Letter

Dear Secretary Mnuchin and Administrator Carranza:
Thank you for your tireless efforts in developing and implementing the Coronavirus Aid, Relief
and Economic Security, or CARES, Act. Included in this package was the critical Paycheck
Protection Program, which has provided a critical lifeline to businesses struggling to keep their
doors open and stay afloat.
As you know, the Paycheck Protection Program (PPP) was set up to provide small businesses
access to emergency capital in the form of low-interest private loans guaranteed by the U.S.
Small Business Administration (SBA). These loans were to be used for payroll and other
statutorily defined business expenses, conditioned upon business retaining or rehiring employees.
These provisions were intended to incentivize business owners to keep their employees, provide
a steady source of income for millions of Americans and limit start-up costs after the pandemic.
As part of the PPP loan application, there is a certification required that the "[c]urrent economic
uncertainty makes this loan request necessary to support the ongoing operations of the
Applicant." While the PPP interim rule did not define necessity, it is clear that Congress
envisioned supporting companies that may not survive given their limited access to capital. This
does not mean that the business had to demonstrate likely foreclosure to qualify. Nor does the
business need to demonstrate that it had no other means of obtaining credit.
Although applicants were not required to seek credit elsewhere or otherwise show likely closure
before applying, it appears that enforcement agencies will be scrutinizing the perceived need for
the funding. Post-issuance reviews seem likely to focus on whether the applicant had sufficient
cash reserves, had access to capital from related sources, issued projections showing limited
impact during the COVID-19 crisis, or was otherwise in a strong financial position prior to
applying for the loan or loan forgiveness.
In its supplemental FAQs issued on April 23, SBA urged borrowers to "review carefully the
required certification" regarding necessity of the loan. SBA's interim final rule gave borrowers a
"limited safe harbor" window of opportunity, until May 7, 2020, to return funds that in retrospect
they should not have received. However, that window has since been extended until May 14,
2020. The SBA has indicated it would deem the original certification as made in good faith -- in
other words, ignore the mistaken certification and forego civil, or even criminal, enforcement
down the road -- if the funds are returned within that time frame.
However, as currently drafted, the interim final rule issued by the SBA has created some very
vague guidance regarding the safe harbor provision. We ask that you exercise the power of your
respective offices to extend the safe harbor window of opportunity for business certification until
one week after the issuance of a final rule. This will give businesses the opportunity to fully
review the final guidance in order to determine whether or not to return the funds.
Thank you for your immediate attention to this issue and again, we ask that you extend the safe
harbor provision until one week after final guidance is issued. We look forward to continuing to
work with you on this and other important issues to ensure the full recovery of the U.S.
economy.