As many organizations approach or reach the end of their Paycheck Protection Program (PPP) covered periods, they should begin to focus on the loan forgiveness application. All PPP borrowers certified in their applications that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” The SBA released two important announcements concerning this certification:
- In its FAQ #46, the SBA announced it will consider that certification to have been made in good faith by any borrower that received less than $2 million of PPP funds.
- The SBA announced that it would review all PPP loans in excess of $2 million, including the borrower’s good-faith certification of necessity.
This means borrowers that received more than $2 million in PPP funds will need to utilize one of the two new SBA forms to compile information regarding their financial status and the effect of the COVID-19 pandemic on their operations.
For each applicable loan, the lender will provide the appropriate questionnaire to the borrower. The borrower should complete the questionnaire and return it to the lender, along with any required documents, within 10 business days. The questionnaire is only one component of the SBA’s review process, but the SBA notes on the form that a borrower may be ineligible for loan forgiveness if it fails to complete and return the form.
- Business entities will use SBA Form 3509 to compile their required information.
- Non-profit organizations will use SBA Form 3510.
Both nine-page questionnaires include either 11 or 13 questions, along with numerous follow-up questions. The questions on Form 3509 for businesses fall into these general categories:
- Revenue comparisons between the 2nd quarter of 2020 and either the 2nd quarter of 2019 or the 1st quarter of 2020
- Questions about whether and how the borrower’s business was affected by government shutdowns, voluntary closures, or altered operations
- Expenditures, including capital projects, owner distributions, and compensation to highly-paid employees
- The borrower’s cash position immediately before its PPP application
- The borrower’s structure, including foreign ownership, private equity ownership, publicly-traded equity, parent-subsidiary relationships
- Whether the borrower received funds under any other CARES Act program
Although similar to Form 3509, Form 3510 provides additional questions specific to non-profit organizations, such as:
- Questions about expenditures and receipts of gifts, grants, and contributions in addition to the Form 3509 revenue questions
- Questions about restricted assets, endowment funds, and non-cash investments
- Whether the borrower is a school, college or university, or a health care provider
It’s important to note that almost all of the questions focus on aspects of the organization’s operations after the original PPP application. Those facts may be relevant in determining whether the PPP loan was necessary for the borrowers’ operations, but they don’t prove whether uncertainty was merited at the time of its application. The applications include spaces to provide additional information. Borrowers should consider using those spaces to describe why uncertainty at the time of the application made PPP funding necessary.
At this time, it appears that the questionnaires will only be one component of the SBA’s review and that borrowers will have the opportunity to provide further context once the initial questions have been reviewed.
While a borrower is not required to fill out a questionnaire until it’s received from the lender, they should review the questionnaires and begin to compile the necessary information. Contact a Hantzmon Wiebel team member if you have questions about the necessity questionnaires or anything else related to PPP forgiveness.
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