PPP Update: SBA Loan Necessity Questionnaire
On October 26, 2020, the U.S. Small Business Administration (SBA) issued a notice in the federal register regarding the SBA’s intent to release two new forms regarding the Paycheck Protection Program (“PPP”) and PPP loan forgiveness issues. The notice is available here.
For clarity, it should be noted that the forms have not yet been approved or issued by the SBA, and the proposed forms remain subject to a thirty day public comment period. Accordingly, the summary below remains subject to change pending final approval and release of the forms.
In the notice, the SBA announced that it is seeking approval from the Office of Management and Budget (OMB) to release two forms, Form 3509 for for-profit businesses and Form 3510 for nonprofit entities. These forms will serve as loan necessity questionnaires to collect information to evaluate the borrower’s certification of economic (recall that all PPP borrowers were required to certify that the economic uncertainty at the time of the PPP loan application made the borrower’s loan request necessary to support its ongoing operations).
If approved in draft form, it appears that lenders will send the applicable form to any borrower that received a PPP loan of at least $2,000,000 after the borrower submits an application for loan forgiveness. The borrower will then have 10 days to complete the questionnaire and provide supporting documentation to the lender.
The majority of items in the draft forms serve to gather information with respect to the borrower’s business activity and liquidity at the time of the PPP loan application. A non-comprehensive list of requested information follows below. But remember the forms are subject to comment and final approval.
Business Activity Assessment
- The borrower’s gross revenue for the second quarters of 2020 and 2019 (note that a different time period may apply for seasonal borrowers)
- Whether the borrower has been ordered to shut down by a state or local authority due to COVID-19 since March 13, 2020
- Whether the borrower has been ordered to significantly alter its operations by a state or local authority due to COVID-19 since March 13, 2020
- Whether the borrower has voluntarily ceased or reduced its operations due to COVID-19 since March 13, 2020
- Whether the borrower began any new capital improvement projects not due to COVID-19 during the period commencing on March 13, 2020 and ending at the end of the covered period
- The borrower’s cash and cash equivalents as of the last day of the calendar quarter immediately before the date of the borrower’s PPP loan application
- Whether the borrower has paid any dividends or other cash distributions (other than for estimated tax payments) between March 13, 2020 and the end of the covered period
- Whether the borrower prepaid any outstanding debt between March 13, 2020 and the end of the covered period
- During the covered period, whether any employee received compensation in excess of $250,000 on an annualized basis
- Whether the borrower received funds from any other CARES Act program
Graydon attorneys continue to monitor and analyze all aspects of the PPP and matters impacting use of PPP loan proceeds and loan forgiveness. Once the comment period terminates and the SBA issues final forms, Graydon attorneys stand ready to assist you in determining what impact the forms may have on PPP loan forgiveness. If you have any questions, or if you require assistance with the economic need forms, your PPP Loan application or forgiveness application, please let us know. We have a Coronavirus Task Force ready to help.