SBA Releases Proposed PPP Loan Necessity Questionnaires for Borrowers $2M or Greater

November 2, 2020

On October 26, 2020, the U.S. Small Business Administration (SBA) issued a notice seeking approval from the Office of Management and Budget (OMB) for the collection of information from recipients, together with affiliates, of Paycheck Protection Program (PPP) loans of $2 million or greater. The notice provides for the issuance of two loan necessity questionnaires, Form 3509 (used by for-profit entities) and Form 3510 (used by nonprofit entities).

The loan necessity questionnaires require the borrower to provide additional information to support the certification that “[c]urrent economic uncertainty makes this loan necessary to support the ongoing operations” of the borrowing entity which was made during the PPP loan application process.

We expect the SBA to make a request for additional information from borrowers via the applicable loan necessity questionnaire after the lender has performed their review of the loan forgiveness application and made a recommendation on forgiveness to the SBA. The SBA advised that lenders are not required to verify or validate borrowers’ responses, or any supporting documentation provided in connection with the questionnaires. The SBA will require a borrower that received a loan of $2 million or greater to complete the applicable loan necessity questionnaire, along with supporting documentation, within 10 business days of receipt.

What information is being requested?

The loan necessity questionnaires ask for data to support business activity and liquidity assessments which includes, but is not limited to, the following:

  • Borrower’s gross revenue in Q2 of both 2020 and 2019
  • Borrower’s expenses in Q2 of both 2020 and 2019
  • If the borrower has been ordered to shut down by a state or local authority due to COVID-19
  • If the borrower has been ordered to significantly alter its operations by a state or local authority due to COVID-19
  • If the borrower voluntarily ceased or reduced its operations due to COVID-19
  • If the borrower began any new capital improvement projects not due to COVID-19
  • Borrower’s cash and cash equivalents as of the end of the last calendar quarter prior to the PPP loan application
  • If the borrower paid any dividend or other capital distributions (in excess of distributions to pay taxes) prior to the end of the Covered Period
  • If the borrower prepaid any outstanding debt prior to the end of its Covered Period
  • If any employees received compensation in excess of $250,000 on an annualized basis during its Covered Period
  • If any owners received compensation in excess of $250,000 on an annualized basis during its Covered Period
  • If the borrower received funds from any other CARES Act program

Let Aprio Help

We now have a better understanding of what information the SBA plans to use to evaluate economic uncertainty and need. This information should be utilized in risk assessments made by borrowers. We will be monitoring the feedback during the 30-day comment period and tracking progress of the pending requirements.

Aprio has established a dedicated PPP loan forgiveness team that is continuously monitoring new guidance from the SBA, as well as the Treasury, Congress and the IRS, to ensure we have the latest information when advising our clients.

To discuss your documentation of economic uncertainty or how to interpret these pending requirements, contact Aprio’s dedicated PPP loan forgiveness team for a consultation.

Disclaimer for services provided relative to SBA programs and the CARES Act

Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.

The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.

Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.

You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.

In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.

Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.

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About the Author

Justin Elanjian

Justin Elanjian, CPA, is the Partner-in-Charge of Aprio’s Paycheck Protection Program (PPP) & Employee Retention Credit (ERC) Services. As a national PPP expert, prominent speaker and strategic business advisor, Justin helps both lenders and borrowers navigate the complexities of the PPP. He also helps his clients realize benefits from other stimulus package programs, such as the ERC, and is committed to strengthening his clients’ balance sheets and helping them achieve what’s next. Justin also leads a team of more than 50 professionals who share his passion for helping businesses maximize the federal COVID relief programs.