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 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)
  • Form 3510 (used by non-profit entities)

The questionnaires appear to be part of the SBA’s review process to assess borrowers’ good-faith certification of their economic need.

As a reminder, PPP borrowers were required to certify that the “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

The new questionnaires have not been formally released by the SBA and cannot be found on their website; however, copies of the forms have shown up on various websites and the SBA has not taken any steps to confirm or deny them.

The request for approval of the questionnaires indicates that the SBA will require any borrower, together with its affiliates, who received a loan in excess of $2 million to complete a questionnaire. The questionnaire, along with supporting documentation, will be due within 10 business days after the borrower’s receipt of it from their lender.

The questionnaire is comprised of a Business Activity Assessment and a Liquidity Assessment, which includes the following items:

  • Borrower’s gross receipts in Q2 2020 as well as 2019
  • Whether the borrower was ordered to shut down by a state or local authority due to COVID-19
  • Whether the borrower was ordered to significantly alter its operations by a state or local authority due to COVID-19
  • Whether the Borrower voluntarily ceased or reduced its operations due to COVID-19
  • The borrower’s approximate cash outlays for new capital projects during the covered period, which were not due to COVID-19
  • The borrower’s cash and cash equivalents prior to the PPP loan application
  • The amount of dividends or other capital distributions, other than pass-through tax payments, to owners during the covered period
  • Whether the Borrower prepaid any outstanding debt during the covered period
  • Whether any employee or owner received compensation in excess of $250,000, on an annualized basis, during the covered period

For loans which have already been submitted for forgiveness, applicants are expected to receive notifications through the SBA Forgiveness Platform requesting the completion of the questionnaire.

The questionnaire makes it clear that receipt of this form does not indicate the SBA is challenging the certification made during the loan application, and it does appear that all borrowers of $2 million or more will be subject to its completion.

We will continue to monitor this issue and the related questionnaire, and we will provide further information as it becomes available. In the meantime, borrowers may want to hold off on applying for PPP loan forgiveness until more information is available about how the SBA will review the responses to the questionnaire.

As always, if you have any questions about these or any other matters, please contact your Kreischer Miller relationship professional or any member of our team. We also continue to update our COVID-19 Business Resources Center, which you can access here.

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.