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SBA to Require Loan Necessity Questionnaires for Certain Borrowers

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In a release posted to the Federal Register on October 26, 2020, the SBA disclosed two new PPP “loan necessity” forms to be completed by borrowers with PPP loans of $2 million and above. The stated purpose of the forms is to provide information that will be used by the SBA loan reviewers to “evaluate the good-faith certification. . .on your PPP Borrower Application” regarding the borrower’s need for the loan. This appears to be connected to the audits the SBA previously announced it would be performing on loans of this size. There will be separate forms for for-profit borrowers (SBA Form 3509) and non-profit borrowers (Form 3510).

Information Being Requested

The forms consist of a general borrower information section and a two-part questionnaire which includes a “Business Activity Assessment” and a “Liquidity Assessment”. The borrower information section requests much of the same information included on the initial application form and loan forgiveness forms.

The Business Activity Assessment section consists of 8 multi-part questions that assesses the quantitative and qualitive impact of the pandemic on the operations of the business. Some examples of the questions include: disclosing comparative gross revenue for the second quarter of 2019 and 2020; providing the start and end date of any mandatory government shutdown orders; amount of cash outlays required to implement any COVID-19 related changes to operations; and the cost of any new capital projects.

The Liquidity Assessment section consists of 13 multi-part questions assessing the borrowers cash availability or access to additional sources of liquidity. This section includes questions relating to the amount of cash or cash equivalents on hand, salaries for highly compensated employees, owner distributions, private equity ownership interests, and any additional funds received from CARES Act programs.

Consequences of Non-Compliance

Borrowers are also required to provide supporting documentation for many of questions and will be required to complete the form within 10 days of receiving it from the lender. Failure to complete the form may result in the SBA determining that you were ineligible for either the loan or loan forgiveness.

While these forms state that receipt of the form does not mean the SBA is challenging the “good-faith certification” on the PPP applications, borrowers should consider these questions as the first part of the SBA audit process. We also note that because the SBA release is still within the 30-day comment period, the forms are not final and may change.

To access SBA Form 3509, click here. 
To access SBA Form 3510, click here. 

To learn more, or have questions about your situation answered, contact the team at Louis Plung & Company at 412-281-8771. 

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