The SBA has recently floated the following draft versions of questionnaires that appear to provide an answer on how they will evaluate “current economic uncertainty.”
Article Updated 12/10/2020
The U.S. Small Business Administration (SBA) issued additional guidance on the Paycheck Protection Program (PPP) loan necessity questionnaires through the following FAQ (frequently asked question) #53 this week. In addition, the SBA has posted the final questionnaires on its website:
Question: Why are some PPP borrowers receiving a Loan Necessity Questionnaire (SBA Form 3509 or 3510)?
Answer: As previously announced, SBA is reviewing all loans of $2 million or more, and other loans as appropriate, for eligibility, fraud or abuse, and compliance with loan forgiveness requirements. As part of this process, SBA is providing a Loan Necessity Questionnaire to lenders for them to provide to PPP borrowers that, together with their affiliates, received loans of $2 million or more.28 Upon request from their lender, borrowers should return the completed questionnaire to their lender within 10 business days of receipt.
The information that borrowers provide on the questionnaire will help SBA assess those borrowers’ certification in their loan application that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” as required by the CARES Act. A request to complete the Loan Necessity Questionnaire does not mean that SBA is challenging a borrower’s certification that is required by the CARES Act. SBA’s assessment of a borrower’s certification will be based on the totality of the borrower’s circumstances through a multi-factor analysis.
As described in FAQ #46, SBA will assess whether the borrower had adequate basis for making the required good-faith certification, based on its individual circumstances in light of the language of the certification and SBA guidance. This certification is required to have been made in good faith at the time of the loan application, even if subsequent developments resulted in the loan no longer being necessary. In its review, SBA may take into account the borrower’s circumstances and actions both before and after the borrower’s certification to the extent that doing so will assist SBA in determining whether the borrower made the statutorily required certification in good faith at the time of its loan application. After a borrower submits its completed questionnaire, SBA may request additional information, if necessary, to complete its review. When additional information is requested, borrowers will have an opportunity to provide a narrative response to SBA explaining the circumstances that provided the basis for their good-faith loan necessity certification.
SBA will make a final determination that a borrower lacked an adequate basis for its loan necessity certification after reviewing any additional information that a borrower chooses to submit. This targeted, multi-step approach will ensure the integrity of the evaluation process and expeditious processing, as well as properly allocate SBA’s finite resources to those loans that require additional review.
Previously Issued Article 11/4
When it comes to a PPP Loan, the largest question that remains is:
What qualifies as a “current economic uncertainty” that makes the loan request necessary to support the ongoing operations of the applicant?
For additional background information on this, read PPP FAQ Update #31.
The SBA has recently floated the following draft versions of questionnaires that appear to provide an answer on how they will evaluate “current economic uncertainty”:
Please, note that these drafts are still pending approval from the Office of Management and Budget (OMB).
Here are the key takeaways from the drafts:
It appears that these questionnaires will be mandatory for borrowers with loans in excess of $2, million which are subject to review by the SBA. For more background on these reviews by the SBA, please read our previous articles:
It is also important to note that all loans (not just borrowers and affiliated borrowers with loans in excess of $2 million) are subject to review by the SBA. There is a six-year window, in which the SBA can review an applicant’s loan. Therefore, all borrowers should consider completing questionnaires.
We will continue to keep you apprised as additional information and guidance is provided. If you have specific questions, please reach out to your blum partner or contact us here.
Disclaimer: The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.