Nov. 12, 2020
All applicants for Paycheck Protection Program (PPP) loans under the Coronavirus Aid, Relief, and Economic Security (CARES) Act were required to certify in good faith that current economic uncertainty made the PPP loan request “necessary…to support…ongoing operations.” As we have previously written, this economic necessity certification has caused much uncertainty and consternation since the PPP was enacted. Further, the Small Business Administration (SBA) has said that it will review all PPP loans in excess of $2 million, following the lender’s submission of the borrower’s forgiveness application.
On October 26, 2020, the SBA published a notice to the Federal Register to seek approval from the Office of Management and Budget to release Form 3509, a loan necessity questionnaire for for-profit borrowers, and Form 3510, a loan necessity questionnaire for non-profit borrowers. In an effort to maximize the PPP’s integrity and protect taxpayer resources, the SBA will send the loan necessity questionnaires to lenders for distribution to borrowers that, together with their affiliates, received PPP loans of $2 million or greater. The questionnaire gives insight into what factors the SBA will be considering when examining whether a borrower’s economic necessity certification was proper.
The questionnaire will need to be completed and returned with supporting documentation to the lender within 10 business days of receipt. Failure to complete the questionnaire and provide the supporting documentation may result in the SBA’s determination that the borrower was ineligible for either the PPP loan, the PPP loan amount, or any forgiveness amount claimed, and the SBA may seek repayment of the loan or pursue other available remedies. Additionally, if the SBA determines that the borrower was ineligible for the PPP loan, the lender will be ineligible for the processing fee and the processing fee will be subject to clawback by the SBA.
The loan necessity questionnaire consists of two parts: (i) a Business Activity Assessment and (ii) a Liquidity Assessment. Supporting documentation and written responses are required for both parts.
The Business Activity Assessment asks for written responses and supporting documentation regarding:
The Liquidity Assessment asks for written responses and supporting documentation regarding:
For additional information see our prior client alerts for more general information about the PPP and PPP loan forgiveness. Related articles may be found on Nelson Mullins’ COVID-19 resources website.
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These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel.