SBA Issues Forms to Document Loan Necessity Under PPP

Last week, the Small Business Administration (SBA) announced a handful of forms that may cause concern for borrowers with over $2 million in loans under the Paycheck Protection Program (PPP). The SBA issued a notice in the Federal Register that they will be collecting information on “Loan Necessity” from certain PPP borrowers. Borrowers with loans under $2 million have a safe harbor regarding the certifications made on their loan applications – everyone else must complete a multi-page form requesting information on the necessity of their loan.

The two new forms are (note - these forms have not yet been posted on the Treasury and SBA sites):

Forms 3509 and 3510 request information specifically related to the certifications made by borrowers for PPP loans of $2 million or greater. The purpose of Forms 3509 and 3510 is to accumulate supplemental information that will be used by the SBA to determine whether the good-faith certification made in the borrower’s PPP loan application met the need requirements.  The PPP loan application required borrowers to certify at the time of application that, “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

The lender will be sending the appropriate form to eligible borrowers. Upon receipt of the questionnaire from the lender, borrowers have 10 days to complete the form and submit it back to their lender, along with required supporting documentation. Once the completed form and supporting documentation has been received by the lender, the lender has five business days to provide the documentation to the SBA.

Activity Assessment Requests

Both questionnaires contain a section dedicated to the assessment of business activity and requests certain company-specific financial and operational information, including the following:

  • Gross revenues / receipts for various quarters between 2019 and 2020.
  • Information about whether the business was required by state or local authorities to shut down due to COVID-19.
  • Information about whether the business was required by state or local authorities to significantly change operations due to COVID-19.
  • Whether any voluntary reduction / alteration in operations took place due to COVID-19.
  • The amount of cash outlays for voluntary or mandatory alterations of operations or facilities due to COVID-19.
  • The amount of borrower expenses in Q2 2019 and Q2 2020 (non-profit only).
  • The amount of gross receipts from gifts, grants, and contributions in Q2 2019 and Q2 2020 (non-profit only).
Liquidity Assessment Requests

Both questionnaires also contain a section dedicated to the assessment of the borrower’s liquidity and requests certain company-specific financial and operational information, including the following:

  • Cash and cash equivalents of the borrower as of the last calendar quarter immediately before the PPP loan application.
  • Dividends / capital distributions to owners between March 13, 2020, and the end of the borrower’s covered period (for-profit only).
  • Prepayments made on debt before its contractual due date made between March 13, 2020, and the end of the borrower’s covered period.
  • The number of employees and, separately, the number of owners who received compensation in an amount that exceeds $250,000 on an annualized basis during the borrower’s covered period.
  • Market capitalization of the Company on the PPP loan application date if the borrower’s equity securities were listed on a national securities exchange (for-profit only).
  • Whether the PPP borrower has an owner that is a publicly traded company and owned more than 20 percent of the borrower’s equity securities at the loan application date.
  • If the borrower is not a publicly traded company, provide the total book value of shareholders equity of the borrower on the last date of the calendar quarter preceding the date of the loan application.
  • Questions addressing other ownership structures (for-profit only), specifically:
    • Was the borrower a subsidiary (50 percent or more owned) of a parent company, whether that parent company is a U.S. company or foreign company and whether the parent company is listed on a U.S. or international securities exchange.
    • Whether 20 percent or more of the borrower’s equity is owned by a private equity firm, venture capital firm or hedge fund (including a fund managed by those types of firms).
    • Whether the borrower was an affiliate or subsidiary of a foreign, state-owned enterprise.
  • Whether the borrower received other funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act in addition to PPP funds.
  • Whether there are restrictions on using cash, savings and net income for PPP-eligible costs, such as salaries and utilities (non-profit only).
  • Whether the borrower directly or indirectly has access to or controls endowment funds and the amount of those funds (non-profit only).

The SBA questionnaire/forms include another certification that the borrower’s responses to the questionnaire are true and correct based on reasonable effort and inquiry on the part of the borrower.

The SBA may still request additional information as part of the loan review process in addition to the initial information requested as part of the questionnaire. The questionnaire also notes that receipt of this form by a borrower does not indicate that the SBA is challenging the original need certification.

If a borrower fails to complete the form, it may result in the SBA determining the borrower was ineligible for the PPP loan and forgiveness amount claimed, in which case, the SBA may request repayment or other remedies.

For more information, reach out to us at CARESActQuestions@dhg.com.

CONTRIBUTORS

Denny Ard
DHG Solutions Lab Leader
Denny.Ard@dhg.com

Payal Shah
Manager, Assurance

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