SBA issuing loan necessity questionnaires for both non-profit and for-profit PPP borrowers
Updated from guidance published 11/2/2020
The Small Business Administration (SBA) recently began issuing certified loan necessity questionnaires to Paycheck Protection Program (PPP) lenders to provide to their borrowers with loans of $2 million or greater. There are two distinct versions of the loan necessity questionnaire: one for for-profit borrowers (Form 3509), and one for non-profit borrowers (Form 3510).
SBA has already been reviewing loans of $2 million or greater – “to maximize program integrity and protect taxpayer resources,” the forms state – and has indicated that it will use the questionnaires to evaluate the good-faith certification that was made on the PPP borrower’s application that “economic uncertainty” made the loan request necessary.
The questionnaire clearly states that “receipt of this form does not mean that SBA is challenging that certification.” SBA writes in an FAQ published Dec. 9:
SBA’s assessment of a borrower’s certification will be based on the totality of the borrower’s circumstances through a multi-factor analysis. … SBA will assess whether the borrower had adequate basis for making the required good-faith certification, based on its individual circumstances in light of the language of the certification and SBA guidance. This certification is required to have been made in good faith at the time of the loan application, even if subsequent developments resulted in the loan no longer being necessary. In its review, SBA may take into account the borrower’s circumstances and actions both before and after the borrower’s certification to the extent that doing so will assist SBA in determining whether the borrower made the statutorily required certification in good faith at the time of its loan application.
However, the SBA also states on the forms that failure to complete the form and provide the required supporting documents may result in SBA’s determination that an organization is ineligible for either the PPP loan, the PPP loan amount, or any forgiveness amount claimed, and “SBA may seek repayment of the loan or pursue other available remedies.”
ABOUT THE FORMS
Each version of the questionnaire is broken down into two sections: activity and liquidity assessments. Borrowers are to answer specific questions; there is also an optional section where a borrower can provide additional comments for each assessment.
For-profit businesses can expect to provide the following types of information on Form 3509; see the full form for details.
1. Gross revenue
2. Details on voluntary or involuntary shutdowns or orders that significantly altered the business’s operations, including:
- Specifics on how the operations were altered
- Cash outlays required to adhere to the orders
- Reasons why the borrower voluntarily ceased or reduced operations
3. Capital improvement projects
1. Amount of cash and cash equivalents as of the last day of the calendar quarter immediately following the borrower’s PPP loan application
2. Dividends or other capital distributions (other than for pass-through estimated tax payments) to its owners during the period between March 13, 2020, and the end of the loan forgiveness covered period
3. Prepayment of any outstanding debt during that period
4. Employee or owner compensation in an amount that exceeds $250,000 on an annualized basis during the loan forgiveness covered period
5. On the application date…
- Were any of the borrower’s equity securities listed on a national securities exchange?
- Did any publicly traded company own 20% or more of any class of the borrower's outstanding equity securities?
- Was the borrower a subsidiary of another company? (If yes, information must be provided about the borrower’s parent company.)
- Was 20% or more of any class of the borrower’s outstanding equity securities owned by a private equity firm, venture capital firm, or hedge fund?
- Was the borrower an affiliate or a subsidiary (defined as at least 50% of the borrower’s common equity or equivalent equity interest directly or indirectly owned or controlled by) of a foreign, state-owned enterprise or of a department, agency, or instrumentality of a foreign state?
6. Receipt of any funds from any CARES Act program other than PPP, excluding tax benefits
After receiving a questionnaire request from their lender, borrowers have 10 business days to return the completed form, along with any supporting documents, signatures, and certifications. The lender then has five business days to upload the form and documents to the SBA PPP Forgiveness Platform and separately input the borrower’s responses to each question into the web form available in the platform.
SBA may request additional information after the questionnaire is submitted. In such cases “borrowers will have an opportunity to provide a narrative response to SBA explaining the circumstances that provided the basis for their good-faith loan necessity certification,” and SBA will then use that information to make a final determination whether the borrower had adequate basis for the certification.
“This targeted, multi-step approach will ensure the integrity of the evaluation process and expeditious processing, as well as properly allocate SBA’s finite resources to those loans that require additional review,” SBA wrote in its Dec. 9 FAQ.
- Not-for-Profit & Education
- SBA Disaster Loan Assistance
- Paycheck Protection Program (PPP) Loan Forgiveness Assistance
- PPP Loan Forgiveness Solutions for Lenders
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
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