“Necessity” of Paycheck Protection Program Loans Clarified

“Necessity” of Paycheck Protection Program Loans Clarified

“Necessity” of Paycheck Protection Program Loans Clarified

(May 13, 2020)


Cleveland, TN: After weeks of uncertainty and many small businesses, including chuches, returning loan funds, the Small Business Administration (SBA) finally issued guidance regarding the good faith certification of the “necessity” requirement of the Paycheck Protection Program (PPP) loans. The SBA addressed this highly contentious issue in a “frequently asked questions” format.


As a part of the PPP loan application process, applicants were required to certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Many churches were concerned that the “necessity” requirement potentially made them liable for fraud charges if it was determined later that it was not absolutely necessary for their continued operations to get the PPP loan. Since the SBA had offered a “no questions asked” policy if the PPP loan funds were returned by May 7 (and later extended to May 14), some churches returned the PPP loan proceeds, concerned that they might not be able to prove “necessity.”


However, in the guidance issued by the SBA on May 13, the SBA offered a “safe harbor” to all applicants that received loans under $2 million, stating that “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.” In other words, borrowers who received less than $2 million will not be required to substantiate the necessity of their loan.


The “safe harbor” offered in this guidance is good news for churches and church-related entities.


Additional information and regulations on the “forgiveness” process is expected from the SBA in the next few days, along with a forgiveness application.