What You Need to Know About PPP Economic Uncertainty Certification
December 10, 2020
On December 9, 2020, the Small Business Administration (SBA) released Paycheck Protection (PPP) Loan FAQ 53 which answers the question “Why are some PPP borrowers receiving a Loan Necessity Questionnaire?”
As we previously discussed, the loan necessity questionnaires, Form 3509 (for–profit borrowers) and Form 3510 (non-profit borrowers), provide insight into how the SBA will evaluate a borrower’s “need” certification. FAQ 46 clarified 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.
While all PPP loan borrowers were required to certify that “current economic conditions make the loan necessary to support ongoing operations of the applicant,” not all borrowers are faced with the completion of the loan necessity questionnaires.
FAQ 53 notes that the SBA’s assessment of a borrower’s certification will be based on the totality of the borrower’s circumstances through a multi-factor analysis. The SBA will assess whether the borrower had adequate basis for making the required good-faith certification considering the language of the SBA certification guidance.
Despite the fact that borrowers were required to make this certification in good faith at the time of the loan application, subsequent developments may have resulted in the loan no longer being necessary. Accordingly, the 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 the SBA in determining whether the borrower made the statutorily required certification in good faith at the time of its loan application.
After a borrower submits their completed questionnaire, the SBA may request additional information. When additional information is requested, borrowers will have an opportunity to provide a narrative response to the SBA explaining the circumstances that provided the basis for their good-faith loan necessity certification. After reviewing additional information that a borrower chooses to submit, the SBA may determine that the borrower lacked an adequate basis for its loan necessity certification. The SBA noted that this targeted, multi-step approach will ensure the integrity of the evaluation process and expeditious processing, as well as properly allocate their finite resources to those loans that require additional review.
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The nature and extent the SBA will rely on the completed questionnaires, narratives, or other requested information when evaluating a borrower’s “need” is to be determined. Borrowers should review the questionnaires as part of their PPP loan risk assessment while preparing to apply for loan forgiveness.
The opportunity for borrowers to provide a narrative regarding the economic uncertainty at the time of their “need” certification is a significant and welcomed shift. These requests from the SBA better align with the intent of the PPP while reiterating the necessity for properly documenting the economic factors borrowers were facing at the time of application.
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 the loan necessity questionnaires, documentation of economic uncertainty or other 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.
About the Author
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.