Small Business Association (SBA) $2M Threshold

The CARES Act created the Paycheck Protection Loan Program to provide help for the most financially vulnerable small business owners in the wake of the COVID-19 pandemic. PPP loan availability has created controversy since the inception, however. Business owners who arguably did not need access to the funds or for whom the program was not designed initially received large loans, while small business owners struggled to receive needed funds. As a result, the Small Business Association (SBA) responded by requiring business owners to certify in good faith that they needed the funds because current economic uncertainty makes the loan necessary to support ongoing operations. The guidance also provides that borrowers with loans of less than $2 million will be deemed to have made the certification in good faith—and will avoid future SBA review.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the firm $2 million SBA limit.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Byrnes

Bloink

Their Reasons:

Byrnes: We have to draw the line somewhere. SBA review of every single paycheck protection loan granted would be an administrative nightmare. It would also create significant uncertainty for small business owners who need to borrow the funds, but might be hesitant for fear of future negative repercussions or a claw back that they cannot afford. The firm cap gives small business owners the certainty they need to focus on reopening their businesses and providing employees with stable paychecks.

Bloink: The $2 million amount is completely arbitrary. I realize that we need to draw the line somewhere. Why $2 million? The small business owners that this program was really designed to help likely do not need a $2 million loan to cover 8 weeks’ worth of payroll costs. Even assuming that the funds are used to pay permitted expenses, a $2 million loan makes me think that the borrowing business is much larger than those we really need to be focused on helping.

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Byrnes: There is no feasible way for the government to review every single small business loan made in response to the pandemic to ensure that each loan was made in good faith. It would be difficult to even verify whether the loan funds are used for their intended purposes. The SBA has the best information when it comes to deciding that $2 million is a reasonable loan amount for small and mid-sized businesses.

Bloink: The $2 million limit brings much larger businesses into the mix. Setting the threshold so high actually increases the odds that larger companies will apply for loans that they don’t truly need. I agree with the need to provide certainty for small business owners, but what this law actually does is provide certainty that a business—regardless of need—can take out a $2 million loan without fear that their certification will later be questioned.

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Byrnes: The SBA has decided that businesses with loans under $2 million are unlikely to have any other significant source of liquidity and we need to stand by that line so that we can focus on the ongoing need for further relief.

Bloink: I’m fine with setting a cap of some sort, but I do think the bar should be much lower. I also think that the SBA guidance should make clear that any loan can be reviewed and questioned at a later date for cause. As written, the rule gives any business owner complete freedom to borrow even if they have access to alternate liquidity sources. This takes funds away from the small business owners who have no other options and for whom this program was really designed.