The Treasury Department and the Small Business Administration (SBA) updated the Paycheck Protection Program (PPP) frequently asked questions on Dec. 9, 2020, indicating PPP borrowers that obtained a PPP loan of $2 million or more must complete a loan necessity questionnaire. Borrowers that obtained a PPP loan of $2 million or more should review the loan necessity questionnaire with their professional advisors.
Background
PPP borrowers were required to certify in their loan applications that the PPP loan was necessary to support ongoing operations of the applicant. The SBA previously announced PPP loans of $2 million and greater would be subject to review to ensure large PPP borrowers appropriately made this certification. On October 26, 2020, the SBA published PPP loan necessity questionnaires for nonprofit borrowers (Form 3510) and for-profit borrowers (Form 3509) in the Federal Register for notice and comment. The loan necessity questionnaires are part of the SBA’s review of PPP loans of $2 million and greater. The loan necessity questionnaires will provide information to SBA loan reviewers to evaluate borrowers’ certifications in their loan applications.
Loan Necessity Questionnaires
The loan necessity questionnaires require extensive financial disclosures. The questionnaires are divided into two sections – Business Activity Assessment and Liquidity Assessment. The Business Activity Assessment requires PPP borrowers to disclose second-quarter 2020 revenue and second-quarter 2019 revenue, ostensibly to allow SBA loan reviewers to compare PPP borrowers’ financial performance during COVID-19 to that of the prior year. The loan necessity questionnaire includes questions concerning how PPP borrowers’ business operations were impacted by the COVID-19 crisis. Borrowers will disclose if they were forced to shut down, suffered a reduction in their operations or experienced a disrupted supply chain.
The Liquidity Assessment requires PPP borrowers to provide supporting documentation disclosing the borrowers’ cash and cash equivalent* short-term debt securities maturing in less than 90 days) on the last day of the calendar quarter prior to PPP loan origination. This section also requires borrowers to provide information concerning compensation, declaration of dividends/distributions, debt prepayments and other similar financial disclosures. Publicly traded companies and borrowers owned in part by a private equity firm, venture capital firm or hedge fund are required to provide additional information.
Procedure
The SBA will provide the loan necessity questionnaires directly to lenders, which are then required to provide them to each PPP borrower that, together with any PPP borrower affiliates, obtained $2 million or more in PPP loans. PPP borrowers are required to return the loan necessity questionnaires to the lender within 10 business days after receipt. The SBA may request additional information from the borrower following submission of the loan necessity questionnaire.
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