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Sean Bryan Authors Article on SBA Loan Necessity Questionnaires

Sean Bryan's article—entitled "Proposed SBA Questionnaires Regarding "Necessity" of PPP Loan"—addresses questionnaires requiring borrowers that received PPP loans of $2 million or more to provide additional information to support the certification that economic uncertainty made the loan necessary.

The Small Business Administration has quietly promulgated proposed Forms 3509 (SBA Form 3509 For-Profit) and 3510 SBA Form 3510 (Non-Profit) that Paycheck Protection Program borrowers who borrow $2,000,000 or more will be required to complete to be used by the SBA to evaluate the good-faith certification that borrowers made on the initial PPP loan application that economic uncertainty made the loan necessary.  PPP lenders will provide the forms to applicable PPP borrowers, who will have 10 business days after receipt to complete and return the forms with all supporting information.  

These forms do not request information about a borrower’s expectations at the time of the application or specifically how the PPP loan affected the borrower.  Instead, while the forms state that the SBA’s determination will be based on the totality of the circumstances, these forms ask for “before” and “after” information on the borrower’s economic performance and the effect of certain outside influences, thus seemingly using hind-sight to determine “necessity”. 

Specific information required about a borrower’s business activity and liquidity include: 
      • Gross revenue in Q2 of both 2019 and 2020
      • Was borrower ordered to shut down or to significantly alter its operations, and if so, by whom and for what period
      • Did borrower voluntarily cease, reduce or alter its operations, and if so, why, for what period, and any cash outlays for alterations
      • Did borrower begin new capital improvement projects during the covered period of the PPP loan
      • Whether borrower made dividends or distributions (other than tax distributions by partnerships) or prepaid existing debt
      • Did borrower have employees or owners who were compensated more than $250,000 on an annualized basis (which is a new category in addition to employees who make $100,000 on an annualized basis)
      • Borrower’s book value before the PPP loan application  
The forms do provide a limited ability (1000 characters max) to provide additional comments on each of business activity and liquidity.  Non-profit borrowers must provide the same or similar information where the business-specific questions are not applicable.  

The comment period for these forms ends November 25, and the address to provide comments can be found in the notice linked to below. 

SBA Notice
SBA Form 3509 (For-Profit)
SBA Form 3510 (Non-Profit)
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