Please see below for two important updates on the PPP front that are continuing to evolve.
Order to Release all PPP & EIDL Loan Recipients
A federal judge ordered on November 5th that the Small Business Administration (SBA) must release the names, addresses, and loan amounts for all PPP and EIDL loan recipients by November 19th. The ruling noted that the Freedom of Information Act does not cover these details. You can find more on the ruling in the ABA Banking Journal article at this link. As noted in the article it is unclear if the SBA will be appealing this ruling.
Loan Necessity Questionnaires
The SBA recently announced the release of two new loan necessity questionnaire forms (Form 3509 for for-profit borrowers and Form 3510 for nonprofits). These forms are specifically for borrowers of $2 million or more in PPP loans and request information related to the economic condition of the borrower not only at the time of receiving the PPP loan, but after receiving the loan as well. Our understanding is that the lender will be distributing these forms to borrowers after receiving forgiveness applications from the SBA for the required loans.
While additional guidance on these forms is expected from the SBA we have provided below our thoughts in relation to several frequently asked questions about these new forms.
Why is this information being requested?
The information requested is to assist the SBA in assessing the “need criteria” to determine the level of forgiveness, if any, granted by the SBA. The certification around need contained in the PPP loan application stated that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”.
What information do the forms request?
The information requested is focused on the broad categories below:
- Gross revenue comparison of Q2 2020 vs. Q2 2019
- Details on impacts of COVID-19 on your business including items such as shutdown or alterations of operations (as well as the length of those and if they were mandatory or voluntary), and any additional costs incurred related to these matters
- Capital improvement projects
- Cash and equivalents prior to the loan application date
- Dividends/distributions to owners for purposes other than taxes
- Details of any debt prepayments
- Details of compensation over $250k to owners or employees (the number of instances and amounts)
- Inquiries around any other CARES funds received
- Market cap, foreign and venture capital ownership inquiries
- Details on the relevant items above as well as certain revenue & expense information, details on any restrictions on using income/cash for operations, and endowment information among other things.
When will my lender send me the form?
Lenders will send the applicable form to borrowers after they submit the forgiveness application to the SBA and the SBA forwards the need assessment forms to the lender.
What is the turnaround time to submit the forms and what happens after submission?
Currently, borrowers are slated to have only 10 days to complete the relevant form upon receipt. There have been rumblings that the length of time to complete the form may be increased based on the initial feedback provided to the SBA.
The lender is required to return the necessity questionnaires to the SBA within five days of receipt of the completed form from the borrower. The SBA then has 90 days from the submission of the forgiveness decision to render its decision.
How can I proactively prepare to receive the forms from my lender?
We suggest for PPP borrowers with loans over $2mm begin gathering the data to complete these forms now in anticipation of the receipt of these forms. In addition, it is suggested that you revisit the contemporaneous documentation telling “the story” of the economic necessity related to your business at the time the PPP loan application was submitted and add any additional details as considered appropriate.
These forms are thought to serve as a uniform tool to “begin the conversation” about the necessity of the PPP loan. It is anticipated that the SBA will also review commentaries and additional information supplementing the contents of the 3509 & 3510 loan necessity forms. We would suggest including all information you consider relevant to assist the SBA in this assessment with the completed form.
What if I choose not to complete the relevant form?
While the answer is not certain it is likely the SBA may determine that the borrower was ineligible for loan, determine a lesser permissible PPP loan amount, or reduce or eliminate forgiveness and seek repayment of the loan.
What about loans under $2mm?
The AICPA noted in a recent webinar that the SBA will be requesting these necessary forms for reviews of applications under $2mm, at least in limited circumstances. It is unclear what the SBA will be using these forms for on loans under $2mm as the SBA previously noted in Frequently Asked Question #46, published on May 13, 2020, that loans under $2mm will be deemed to have automatically met the good faith certification around the current economic uncertainty making the PPP loan request necessary to support ongoing operations.
If your company would like assistance with review and/or documenting need assessments or overall PPP assistance, reach out to SN’s PPP team today.
Chad Bumbaugh, CPA | Managing Director, Entrepreneurial Services Group
During his career, Chad has worked with many different types of businesses on a wide range of tax and accounting issues. Beyond the traditional compliance work, he assists clients with tax and general business consulting matters, as well as implementations of new accounting pronouncements. He particularly enjoys opportunities to strategize with clients on how to more efficiently conduct operations, improve cash flow, and minimize tax burdens. The relationship which develops when you partner with clients to identify practice solutions is one of the highlights of his position.