SBA Requires PPP Loan Necessity Questionnaire for $2+ mil Borrowers

The U.S. Small Enterprise Administration (SBA) would require Paycheck Safety Program (PPP) lenders to difficulty “mortgage necessity” questionnaires to all debtors of PPP loans of $2 million of extra. On October 26, 2020, the SBA printed a discover looking for remark within the Federal Register for the 2 types of “mortgage necessity” questionnaires – one for for-profit debtors (Type 3509) and one for non-profit debtors (Type 3510). As of November 9, 2020, it seems that the SBA has not formally launched both questionnaire. Nonetheless, now we have situated kinds which may be present via on-line and different sources, which seem in line with publicly-available info. Copies of the present kinds can be found right here: SBA Type 3509 and SBA Type 3510.

The questionnaire states that its objective is to “facilitate the gathering of supplemental info” that can be used “to tell SBA’s assessment of [a PPP borrower’s] good-faith certification that financial uncertainty made [such borrower’s] mortgage request essential to help [its] ongoing operations.” Debtors are required to finish and submit the shape, together with the required supporting documentation, inside 10 enterprise days of receipt from their lenders. Failure to finish the shape could consequence within the SBA’s willpower of ineligibility, and the SBA could search reimbursement of the mortgage or pursue “different accessible cures.”

PPP debtors that obtained loans of $2 million or better have identified that their mortgage could be topic to assessment by the SBA for compliance with PPP necessities. Nonetheless, the questionnaires require in depth quantities of knowledge and aren’t restricted to questions on a borrower’s circumstances on the time it utilized for its PPP mortgage. As mentioned in additional element beneath, this forward-looking request for info is a brand new and notable growth. Though it’s not but clear whether or not the launched questionnaires are closing or correct, listed below are a number of the key takeaways from Type 3509 (i.e., the “mortgage necessity” questionnaire for for-profit PPP debtors).

Completion Deadline and Potential Repercussions: The directions to Type 3509 point out that the finished type, together with supporting documentation, have to be offered to the PPP lender inside 10 enterprise days of a request for such info from the PPP lender. A PPP borrower’s failure to submit a accomplished Type 3509 (and required supporting documentation) throughout the 10-business-day interval could consequence within the SBA’s willpower {that a} PPP Borrower is ineligible for the PPP mortgage, the PPP mortgage quantity, or any forgiveness quantity claimed. Additional, if a PPP borrower fails to fulfill the 10-business-day requirement, the SBA could search reimbursement of the mortgage or pursue “different accessible cures.”

Goal: The aim of Type 3509 is to “facilitate the gathering of supplemental info that can be utilized by SBA mortgage reviewers to judge the good-faith certification” made in a PPP borrower’s mortgage utility. The SBA is conducting this assessment to “maximize the integrity of the PPP program and defend taxpayer sources.” The questionnaire particularly states that receipt of Type 3509 doesn’t imply the SBA is difficult a PPP borrower’s “good-faith certification,” and debtors are reminded that the SBA’s willpower can be based mostly on the totality of every borrower’s circumstances.

Data Sought: The questionnaire requires PPP debtors to reply questions on their monetary circumstances on the time the PPP mortgage utility was made, together with, however not restricted to: (1) whether or not, on the date of the PPP mortgage utility, the PPP borrower or its father or mother firm was publicly traded; (2) whether or not, on the date of the PPP mortgage utility, any publicly-traded firm, non-public fairness agency, enterprise capital agency, or hedge fund owned 20% or extra of any class of the PPP borrower’s excellent fairness securities; and (3) whether or not, on the date of the PPP mortgage utility, not less than 50% or extra of the PPP borrower’s frequent fairness, or equal fairness curiosity, was owned, straight or not directly, by one other firm or by a international, state-owned enterprise. Nonetheless, what has come as a shock to most, is that Type 3509 isn’t restricted to questions regarding a PPP borrower’s financial circumstances on the time of PPP mortgage utility; relatively, it contains many questions that elicit responses pertaining to the PPP borrower’s financial circumstances following receipt of the PPP mortgage. These questions embrace, however aren’t restricted to: (1) a PPP borrower’s “approximate extra money outlays” for varied alterations to its operations; (2) whether or not the PPP borrower, between March 13, 2020, and the tip of the lined PPP mortgage forgiveness interval “paid any dividends different capital contributions (apart from for pass-through estimated tax funds)” to its homeowners; (3) whether or not the PPP borrower, throughout the identical interval, pay as you go any excellent debt; and (4) whether or not the PPP borrower, throughout the mortgage forgiveness interval of the PPP mortgage, paid any of its workers compensation in an quantity that exceeds $250,000 on an annualized foundation. It stays unclear whether or not (or how) the SBA will retroactively apply elements that have been unknown on the time of a borrower’s PPP mortgage utility when evaluating a borrower’s good-faith certification that “financial uncertainty” made the mortgage request “vital” to help ongoing operations.

Required Certifications: Type 3509 requires an “approved consultant” of the PPP borrower to make three certifications, together with: (1) that he/she has authority to signal and submit the Type 3509 questionnaire on behalf of a PPP borrower; (2) that the data and all supporting documentation offered, after making affordable inquiry of individuals, programs and different info accessible to the PPP borrower, is true and proper in all materials respects; and (3) that he/she understands that knowingly making a false assertion to acquire a assured mortgage or forgiveness of an SBA-guaranteed mortgage is punishable by imprisonment and/or fines.

Conclusion: The SBA’s inquiry right into a PPP borrower’s financial circumstance after receiving the PPP Loans is a brand new and stunning growth. Nonetheless, the SBA has not clarified how the data offered on Type 3509 can be evaluated, or underneath what circumstances the SBA will deny forgiveness. For now, it appears the PPP debtors and PPP lenders are left awaiting official steering relating to implementing and/or decoding these questionnaires.