PPP Loan Enforcement Begins With SBA Issuing a Borrower Questionnaire
The Small Business Administration will soon require borrowers who received Paycheck Protection Program loans greater than $2 million to complete questionnaires related to their loans. SBA designed the questionnaires to “facilitate the collection of supplemental information that will be used by SBA loan reviewers to evaluate the good-faith certification” made by their PPP loan application. More than 50,000 borrowers received loans greater than $2 million, including about 10,000 non-profits.
In late October, SBA published a notice seeking public comment in the Federal Register for the two forms of the borrower questionnaires. The two questionnaires—one for for-profit borrowers (Form 3509) and one for non-profit borrowers (Form 3510)—do not appear to have been officially released yet. A copy of SBA Form 3509 (for-profit) can be found here. Borrowers will have to move quickly: SBA allows just 10 business days to complete and submit the questionnaire, along with supporting documents.
SBA will likely use the information to help determine forgiveness eligibility and to determine whether the PPP loan was economically necessary. The proof of economic necessity requirement reflects a change in emphasis—when the program started in March, potential adverse economic impacts were deemed sufficient justification for the application.
For PPP lenders, the questionnaires may raise liability concerns. The application process required borrowers to complete a “needs certification”—and early SBA guidance required lenders to carefully review the certification and supporting documentation. If the information in their borrowers’ questionnaires differs from the information submitted in the needs certification—or if the questionnaire answers suggest that the loan was not economically necessary—lenders may wish to evaluate their credit risk or regulatory risk.
SBA has signaled that it will not examine too closely PPP loans of less than $2 million. SBA has said that, absent certain circumstances, it would deem the needs certification for smaller loans to have been made “in good faith.” But with larger loans, SBA is taking a different approach.
What Questions are on the Questionnaire?
The questionnaires require borrowers to provide wide-ranging information, not limited to the borrower’s circumstances at the time it applied for its PPP loan. The questionnaires contain 21 questions broken into two categories: “Business Activity Assessment” and “Liquidity Assessment.” In the Business Activity Assessment, Form 3509 asks for information and supporting documentation for issues such as:
- Second calendar quarter (Q2) revenue for 2020 compared to 2019
- Whether the borrower been ordered to shut down by a state or local authority due to COVID-19
- Whether the borrower been ordered to significantly alter its operations by a state or local authority due to COVID-19
- Whether the borrower voluntarily ceased or reduced its operations due to COVID-19
With respect to the Liquidity Assessment, Form 3509 seeks the following type of information:
- Cash on hand at the time of the borrowers PPP loan application
- Whether the borrower has paid any dividends or other capital distributions (other than for pass-through estimated tax payments) to its owners
- Whether the borrower has prepaid any outstanding debt before contractually due
- The number of employees receiving more than $250,000 in annual compensation
- Whether, on the date of the borrower’s PPP loan application, were any of Borrower’s equity securities listed on a national securities exchange
The questionnaires must be signed by the PPP borrower and three certifications must be initialed. Those certifications are: first, that the person signing the questionnaire has the authority to submit it on the borrower’s behalf; second, that information and supporting documentation provided are true and correct in all material respects; and third, that the borrower understands “that knowingly making a false statement to obtain a guaranteed loan or forgiveness of an SBA-guaranteed loan is punishable under the law,” including possible imprisonment and hefty fines. These questionnaires provide SBA with a powerful tool for investigating and assessing liability against borrowers who provide inaccurate or incomplete information, so borrowers who receive a questionnaire from their PPP lenders should ensure to provide complete and good-faith responses.
With the public comment period recently passing on November 25, 2020, SBA may soon provide official guidance regarding the implementation and interpretation of these questionnaires.