SBA Part Thirty: Watch Out For Any PPP Borrower With $ 2 Million Or More In PPP Loans – The SBA Has Revisited Their Famous Loan Need FAQ Once Again And You May Not Be Satisfied
Late last week, the Small Business Administration (SBA) quietly released two new documents that we expect Paycheck Protection Program (PPP) borrowers with loan amounts greater than $ 2. $ 000,000 (alone or in combination with loan amounts received by affiliates) be asked to complete and submit as part of the SBA PPP loan remission audit. These forms are called Loan Necessity Questionnaires and exist in two versions, SBA Form 3510 for Nonprofit Borrowers and SBA 3509 for-profit form borrowers. Until a formal announcement is made by the SBA and / or the Treasury Department, forms may change and should not be considered final at this point. These questionnaires are used as a tool to confirm the ‘good faith certification that economic uncertainty has made [its] loan application needed to support [its] Ongoing Transactions ”for each PPP borrower who received $ 2 million or more in PPP loan funds during the SBA audit. The total loan amount takes into consideration PPP loans from a borrower’s subsidiaries.
The publication of these new documentary requirements again puts the emphasis on SBA and Treasury FAQ # 31, originally released on April 23, 2020, for publicly traded companies that have stated:
Question: Are businesses owned by large corporations with sufficient sources of liquidity to support the day-to-day operations of the business eligible for a PPP loan?
Reply: In addition to reviewing the applicable membership rules to determine eligibility, all borrowers should assess their economic need for a PPP loan against the standard established by the Aid, Relief and Economic Security Act. coronavirus (CARES Act) and PPP regulations at the time of loan application. Although the CARES Act suspends the ordinary requirement that borrowers must not be able to obtain credit elsewhere (as defined in Section 3 (h) of the Small Business Act), borrowers must still certify good credit. faith that their PPP loan application is required. Specifically, before submitting a PPP application, all borrowers should carefully review the required certification that “[c]The current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations. Borrowers should make this certification in good faith, taking into account their current business activity and their ability to access other sources of sufficient liquidity to support their ongoing operations in a manner that does not significantly harm the company. For example, a state-owned enterprise with substantial market value and access to capital markets is unlikely to be able to perform the required certification in good faith, and such an enterprise must be prepared to demonstrate to the SBA, on request, the basis of its certificate.
This was followed by FAQ # 37 for private companies on April 28, 2020, which stated that the same good faith certification requirements applied. As part of this process, on April 29, 2020, the SBA and Treasury stated in FAQ # 39 that all PPP loans totaling $ 2 million or more would be reviewed by the agency. This review process will now include loan necessity questionnaires.
Many lenders started accepting loan forgiveness requests in mid-August 2020. PPP borrowers have until the maturity date of their respective PPP loan to request loan forgiveness, but if a borrower wants to avoid to make payments on his loan, he has only 10 months from the end of his loan forgiveness period to request a loan forgiveness. The SBA’s process for implementing these forms is unknown at this point and likely won’t be until the SBA makes an official announcement. However, if a lender has previously submitted a loan forgiveness request from a PPP borrower to the SBA, they can expect to receive a request through the SBA’s remittance platform requesting the submission of a completed questionnaire. . The SBA again noted that lenders are not required to verify or validate borrower responses or supporting documentation related to the questionnaire. Borrowers must provide their responses to the questionnaire within 10 days of receipt. Lenders are required to enter and submit the completed questionnaire to the SBA within five days of receipt through the SBA’s forgiveness platform. Failure to complete the form and provide the required supporting documents may result in the SBA determining that the borrower was not eligible for a PPP loan and may request immediate repayment or other available remedies.
The questionnaires focus on three main areas: (1) assessment of business activity, (2) assessment of liquidity and (3) certifications.
The Business Activity Assessment section has eight questions with sub-sections, which include a comparison of Q2 2020 gross revenue versus Q2 2019, and requests for details regarding government-mandated orders after the March 13, 2020, related to closure or involuntary or voluntary. the requirement of significant operational changes affecting the PPP borrower due to COVID-19. PPP borrowers who have not been affected by COVID-19 should conduct a review of their individual circumstances, as it appears the SBA will be looking at COVID-19 specific income and disruptors.
The liquidity assessment contains 13 additional questions with subparts regarding the amount of money the PPP borrower had available before applying for the PPP loan. The questions in this section target the equity and debt transactions of the PPP borrower and ask if the PPP borrower has paid dividends or other distributions of capital, other than for estimated tax purposes, to its owners. during the period covered by the cancellation of the loan.
Finally, the questionnaire asks the PPP borrower to certify: the veracity of its statements, a person authorized to sign on behalf of the PPP borrower, and the recognition that making false statements is punishable by law.
Items of the nonprofit questionnaire to note:
Form 3510 is similar in configuration to the specifics of the questionnaire described above. However, it focuses on the amount of contributions, donations, and grants received by a nonprofit in its Q2 comparison between 2020 and 2019. Fortunately, the questionnaire takes into consideration any restrictions that the organization has to. nonprofit has on its net assets. Schools, colleges and universities should also indicate whether or not they offered additional financial assistance to their students during the 2019-2020 academic year due to COVID-19 and whether they experienced a decrease in tuition income due to COVID 19 relating to the 2018-2019 academic year.
For-profit questionnaire issues:
These questionnaires were broadcast after the eleventh hour. Many companies have taken this money and put it to good use. Some of these same companies may have had cash, but would not have used cash or had access to debt to keep their workforce in place without the PPP loan. Many companies can take advantage of the optional space in question 13 of the Liquidity section to express this rationale. Additionally, many small businesses are flow-through entities, such as S corporations or partnerships, and regularly make tax estimate payments that have fallen during the periods covered by the loan cancellation for these PPP borrowers. Form 3509 deals with distributions designed for estimated quarterly tax payments from homeowners, with a few additional stipulations. However, it does not address 2019 taxes for which distributions were made and possibly paid during the period covered by the loan cancellation.
In addition, it appears that further scrutiny will be applied to PPP borrowers whose employees or owners earned more than $ 250,000 on an annualized basis during the period covered by the loan cancellation. Other questions relate to: borrowers who have equity securities listed on a national stock exchange or are 20% or more owned by a publicly traded company; borrowers who are owned by other companies, private equity funds or foreign companies (more information is required for each, if applicable); and whether the PPP borrower has received additional funding from the CARES Act other than the PPP.
Additionally, due to the SBA’s decision to release borrower information and a range of loan amounts earlier this summer, many companies are concerned that their responses to these questionnaires will become public information. Responses and any supporting documentation must therefore be clearly marked on each page as confidential and not subject to disclosure under FOIA.