Client Alerts

The CARES Act Update – Safe Harbor Materially Revised

By: Alan W. Scheufler, Stephen G. Nesbitt and Bradley D. Kaplan

About: Banking & Commercial Finance

UPDATED May 14, 2020 – On May 13, 2020, the U.S. Treasury Department announced an additional automatic extension of the Safe Harbor deadline from May 14, 2020 to May 18, 2020.

May 13, 2020 – The rules and ground shifted yet again today when FAQ 46 was issued at the eleventh hour. Everyone, take a deep breath.

At approximately 11 a.m. EDT this morning, the Treasury Department (Treasury) announced FAQ Question 46. This new question materially revises the Safe Harbor within which to repay in full a Paycheck Protection Program (PPP) loan.

Q:  What is the Safe Harbor? On the PPP loan application, every borrower certifies in good faith that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” This is sometimes referred to as the “Necessity Certification.” Treasury FAQs 31, 37, and 39 stated that every business must be able to make the Necessity Certification, “[t]aking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

Under the Safe Harbor, if the PPP loan is returned in full by May 14, 2020, that borrower will be deemed to have made the Necessity Certification in good faith. If the PPP money is not returned and the Necessity Certification was not made in good faith, then Treasury threatened businesses with investigations, prosecution, criminal fines, and prison time.

Q:  What changed in FAQ 46 for PPP loans under $2 million? The latest, massive change now states that if a business’ PPP loan is for less than $2 million, the business will be deemed to have made the Necessity Certification in good faith.

These businesses can now exhale.

We have talked to many small businesses that have wrestled with returning their PPP money and laying off employees instead. That is because laying off employees is an easier choice than potentially being second guessed by the Small Business Administration (SBA), subjected to threatened audits and investigations, or penalized by the Treasury’s threatened fines, criminal prosecutions, and potential jail time.

But, assuming Treasury does not change its mind yet one more time, you no longer have to consider that awful choice. Use your PPP loan for the intended purposes (75% for payroll costs and 25% for rent, mortgage interest, and utilities) and go on doing business in these trying times.

Q: What about businesses with PPP loans of $2 million or more? They will still be audited by the SBA prior to loan forgiveness. This last minute rule change states that if the SBA determines in the course of its review that a borrower lacked adequate basis for the Necessity Certification, then the SBA will seek repayment of the outstanding PPP loan balance and inform the borrower it is not eligible for loan forgiveness. If the borrower repays the loan after receipt of that notification, the SBA will not pursue administrative enforcement or referrals to the other agencies based on the Necessity Certification.

These businesses can only partially exhale.

You still should build a clear analysis, record, and documentation of your good faith Necessity Certification. Keep those documents in your permanent business records because the audit is coming following your application for loan forgiveness. You need to be able to show why the PPP loan was necessary in your business circumstances and that you made a good faith Necessity Certification.

Q:  Does this mean there is no chance of criminal prosecution? No. We presume that egregious, fraudulent abuses of the PPP loan program, or intentional abuses of the eligibility rules, could be subject to prosecution. A good faith decision to apply for a PPP loan should not be subject to criminal prosecution resulting from differing views as to the necessity of the loan if the loan is promptly repaid after a SBA determination. In order to evidence a good faith decision, documents evidencing the need for the PPP loan should be compiled and maintained.

Q:  What if my business still needs to take advantage of the Safe Harbor? There are numerous reasons a business may still need to take advantage of the Safe Harbor. Some businesses just cannot justify the Necessity Certification in good faith. Others have since learned that they did not qualify in the first place under the difficult to understand SBA eligibility rules. In these and other cases, they should return their money to the lender they worked with. The deadline to return the money in full, plus 1% interest is May 14, 2020.

Please call your banker right now to find out how to return the money, the forms to be completed, and the procedures to follow. You will want to return the money by the morning of May 14. Do not wait until the afternoon of May 14 when you may be blocked from returning the money under the Safe Harbor simply because the queue of other businesses doing the same thing is too long.

Q: Where can I find more information about the Safe Harbor? Click here for further information about the Safe Harbor and the factors your business should consider in determining whether it is appropriate for your business to take advantage of the Safe Harbor. Click here to view and listen to Ulmer’s May 5 webinar regarding the Safe Harbor and related issues. Click here to view the Treasury’s full FAQ, Questions 1-46.

Ulmer’s Banking & Commercial Finance Group is available to provide you with strategic advice and counseling as you navigate the business challenges of the COVID-19 pandemic. Please reach out to our attorneys if you have any questions.

The information provided in this client alert speaks only to the information and guidance we have available as of the date of publication and is subject to change. We will continue to follow further issued guidance and regulations and endeavor to post those updates via our website. Please continue to follow these updates at This legal update was created by Ulmer & Berne LLP, and is not intended as a substitute for professional legal advice. Receipt of this client alert, by itself, does not create an attorney client relationship. For any questions, or for further information, please contact Alan W. Scheufler at, Stephen G. Nesbitt at, or Bradley D. Kaplan at