Advance SBA Assessment of PPP Borrower Economic Necessity Certification
From the start of the Paycheck Protection Program (PPP), borrowers wondered about the significance of the economic necessity certification that the Small Business Administration (SBA) required from borrowers in the PPP loan application. Although the SBA provided a definition of this certification in frequently asked questions such as FAQs 31, 37 and 46, there was still some uncertainty. Now, months after submitting the last PPP loan application, the SBA is beginning to undertake an information gathering effort to enable SBA loan examiners to review a borrower’s certification that economic necessity made the loan request necessary.
The SBA is prepared to collect this information from PPP borrowers through the newly created Paycheck Protection Program Loan Necessity Questionnaires, with a for-profit (SBA-Form-3509) and non-profit version. (SBA-Form-3510). The following details of this information gathering effort can be gleaned from these two forms (which have not yet been made public by the SBA or the Treasury and may still be subject to review prior to publication. official):
- Who does the SBA collect information from? Borrowers who, along with their affiliates, have received PPP loans with an initial principal amount of $ 2 million or more. (Note that the SBA has not publicly stated whether all of these borrowers will receive this form or just a subset of these borrowers.)
- What information does the SBA ask for? Through questionnaires, the SBA requests detailed information about the borrower’s activities (including, but not limited to, whether the borrower has been ordered to significantly modify its operations by a state or authority). local, the borrower has voluntarily ceased or reduced operations due to COVID-19, or the borrower has started new non-COVID capital improvement projects) as well as regarding the borrower’s liquidity (e.g. , whether the borrower has paid dividends or other distributions of capital, made debt repayments or has indemnified employees in an amount that exceeds $ 250,000 on an annualized basis, etc.).
- How long does the borrower have to respond?? Borrowers must complete the questionnaires within 10 business days of receiving the questionnaire from their lender.
- What certifications must be made in this form? Among other certifications, borrowers must certify that the information provided in the questionnaire and in all supporting documents is true and correct in all material respects and the certification is made after reasonable investigation of the people, systems and other information available. to the borrower.
- What are the consequences if you do not complete the Questionnaire and do not provide the necessary supporting documents? The SBA may determine that the borrower was not eligible for the PPP loan, the PPP loan amount, or any rebate amount claimed, and the SBA may seek repayment of the loan or exercise other available remedies.
- Which standard will the SBA use when reviewing the questionnaire? The determination of the SBA will be based on the overall situation of the borrower.
While the SBA informed the public of the existence of these questionnaires in a notice published in the Federal Register on October 26, 2020, until November 12, 2020, the SBA has yet to make these forms public on the SBA websites. or the Treasury. CORN, the SBA has already provided these forms to lenders, and some lenders have started sending these forms to their PPP borrowers.
In light of the significant amount of information and documentation required by these questionnaires, including if and when they will be issued to all (or certain subsets of) borrowers with an initial principal of $ 2 million or more , and what consequences borrowers will suffer if The SBA disputes the information submitted in the form, a PPP borrower with loans equal to or greater than the $ 2 million threshold would be well advised to start thinking about how they would respond to the questionnaire. Paycheck Protection Program Loan Need. We stand ready to help PPP borrowers overcome this anticipated new hurdle and will provide prompt updates as the SBA releases more information on this information gathering effort.