Recipients of large Paycheck Protection Program (PPP) loans continue to face increased scrutiny. Under the latest proposed update to the PPP, for-profit and non-profit borrowers receiving amounts of $2 million or more would be required to submit a Loan Necessity Questionnaire to the Small Business Association (SBA).

PPP Loan Necessity Questionnaire

When borrowers initially applied for PPP loans, they were required to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations” of their business. In response to concerns that PPP funds were awarded to large businesses that had adequate sources of liquidity, the SBA previously announced that it will audit all loans over $2 million prior to full forgiveness.

On October 26, 2020, the SBA proposed new forms — SBA Form 3509, Paycheck Protection Program Loan Necessity Questionnaire (For-Profit Borrowers) and SBA Form 3510, Paycheck Protection Program Loan Necessity Questionnaire (Non-Profit Borrowers) — that will subject borrowers receiving large loans to additional scrutiny. According to the SBA, the purpose of the new forms is to facilitate the collection of supplemental information to be used by SBA loan reviewers in evaluating borrowers’ good-faith certifications on their PPP applications that economic uncertainty made the loan request necessary. Receipt of the form, however, does not mean that SBA is challenging that certification.

After the form is submitted, the SBA may request additional information to complete its review. According to the SBA, its determination will be based on the “totality of the borrower’s circumstances.” As set forth in the Loan Necessity Questionnaire, failure to complete the form and provide the required supporting documents “may result in SBA’s determination that you were ineligible for either the PPP loan, the PPP loan amount, or any forgiveness amount claimed, and SBA may seek repayment of the loan or pursue other available remedies.”

Below are several areas addressed in the Loan Necessity Questionnaire:

  • Information about mandatory closures/shutdowns impacting the business
  • Details about mandatory and/or voluntary alteration of operations
  • Changes in revenue
  • Cash and cash equivalents on hand just prior to PPP loan application
  • Dividend/capital distributions
  • Voluntary debt prepayments
  • Employee compensation over $250,000 per year
  • Market capitalization of publicly listed borrowers
  • Identity of equity owners, i.e. private equity firms, venture capital firms, or hedge funds
  • Participation in additional CARES Act programs
  • NAICS code

Next Steps for PPP Loan Recipients

For borrowers receiving a Loan Necessity Questionnaire from their lender, the completed form is due to the lender within ten business days of receipt. Given the relatively short deadline for completing the questionnaire, PPP borrowers receiving loans of $2 million or more should consider taking the time now to gather the necessary information.  The comment period on the proposed forms closes on November 25, 2020. Once final, the  SBA is expected to release guidance on the new Loan Necessity Questionnaire, so we encourage borrowers that may be impacted to check back for updates.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Robert A. Marsico, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.