Among the certifications required of Paycheck Protection Program (PPP) borrowers on their loan applications was that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” As we previously wrote about, PPP borrowers with loans of $2,000,000 or more (together with affiliates) are subject to a review by the SBA for compliance with program requirements. Recent developments are shedding some light on what the SBA’s compliance review will entail.
Last week the SBA published a notice in the Federal Register seeking OMB approval of two new forms (SBA Form 3509 and SBA Form 3510) aimed at assessing the good faith certification by PPP borrowers of the necessity for the loan. Form 3509 is a PPP Loan Necessity Questionnaire for for-profit borrowers. Form 3510 is a PPP Loan Necessity Questionnaire for non-profit borrowers.
These questionnaires, which as of today are not available on either the Treasury Department or SBA websites, are to be submitted by PPP borrowers within ten business days of receipt from their lender (lenders apparently will distribute the form to applicable borrowers). The following is an excerpt from the cover page of Form 3509/3510:
SBA is reviewing these loans to maximize program integrity and protect taxpayer resources. The information collected will be used to inform SBA’s review of your good-faith certification that economic uncertainty made your loan request necessary to support your ongoing operations. Receipt of this form does not mean that SBA is challenging that certification. After this form is submitted, SBA may request additional information, if necessary, to complete the review. SBA’s determination will be based on the totality of your circumstances.
Failure to complete the form and provide the required supporting documents may result in SBA’s determination that you were 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.
The questionnaires are nine pages long and broken down into an Activity Assessment section, a Liquidity Assessment section, and a Certifications section. While the stated purpose of Form 3509/3510 is to “evaluate the good-faith certification that you made on your PPP Borrower Application (SBA Form 2483 or Lender’s equivalent form) that economic uncertainty made the loan request necessary,” much of the information sought relates to the borrower’s financial activities in the periods subsequent to receiving the loan.
Questions contained on the questionnaire include, but are not limited to, the following:
- Since the COVID-19 National Emergency Declaration issued by President Trump on March 13, 2020, has Borrower been ordered to shut down by a state or local authority due to COVID-19?
- Between March 13, 2020 and the end of the loan forgiveness covered period of the PPP loan, did Borrower begin any new capital improvement projects not due to COVID-19?
- As of the last day of the calendar quarter immediately before the date of Borrower’s PPP loan application, how much did Borrower own in cash and cash equivalents?
- Between March 13, 2020 and the end of the loan forgiveness covered period of the PPP loan, has Borrower paid any dividends or other capital distributions (other than for pass-through estimated tax payments) to its owners?
- During the loan forgiveness covered period of the PPP loan, were any of Borrower’s employees compensated in an amount that exceeds $250,000 on an annualized basis?
In addition to specific questions, the Activity Assessment and Liquidity Assessment sections each contain a free-form optional comments field (subject to a 1,000-character maximum).
Given the length of the questionnaires and the tight turnaround time, PPP borrowers should start familiarizing themselves with the applicable questionnaire now, in anticipation of OMB approval. It remains to be seen whether the SBA will provide supplemental guidance (e.g. FAQs) pertaining to the PPP Loan Necessity Questionnaires.