In May, after an outcry due to multiple publicly traded entities receiving PPP loans, the Treasury and Small Business Administration (SBA) released FAQ #31, which nebulously stated that a borrower should carefully review the needs certification before keeping the PPP loan and established a safe harbor date of May 7, 2020, for any organization that did not meet the certification to return funds without penalty. With no guidance on how to comfortably attest to this certification, this FAQ sent borrowers into a panicked frenzy. In response, the Treasury and SBA released FAQ #46 which allowed for any borrower, together with its affiliates, that received PPP loans with an original principal amount of less than $2 million to be deemed to have made the required needs certification in good faith. This FAQ also stated that a borrower with a loan in excess of $2 million may still be able to satisfy the needs certification, subject to audit by the SBA during a loan review. No further guidance was provided as to what supporting documentation would be required for the audit.
On October 26, 2020, as part of the Paycheck Protection Program (PPP) loan review process, the SBA began sending loan necessity questionnaires to some lenders for distribution to borrowers with loans above the $2 million threshold. The questionnaire is due within ten business days of receipt from the lender. There are two versions of the form, Form 3509 for for-profit borrowers and Form 3510 for non-profit borrowers. Lenders that have rendered forgiveness decisions on loans over $2 million will likely receive this questionnaire shortly with general instructions on how the borrower should complete the required documentation. Lenders are not required to verify data reported on the form or supporting documentation submitted.
The main purpose of these forms appears to be information gathering so the SBA can better assess a borrower’s business activity and liquidity. While both the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and FAQ #31 instructed borrowers to assess their need for the loan at the time of application, citing need based on “economic uncertainty”, these forms attempt to gather enough data to assess need both at the time of application and during the subsequent use of the funds. The forms ask borrowers to compare quarterly revenue and equity balances between 2019 and 2020, as well as to disclose dividend distributions and certain compensation levels.
Borrowers with loans over $2 million should start gathering documentation now to assist in completing the form when they receive it from their lender. PPP guidance has evolved constantly since March, and the new forms will generate the need for additional clarification. Given the content and questions of the newly released forms, borrowers should carefully consider delaying forgiveness applications until more is known about how the forms will be used.
If you need assistance in understanding the forms or have questions about how and when to proceed with the PPP loan forgiveness process, contact us using the form below.