SBA Explains Loan Necessity Questionnaires in Updated PPP FAQs

On December 9, 2020, the Small Business Administration (SBA) updated a set of “frequently asked questions” (FAQs) concerning the Paycheck Protection Program (PPP). The SBA released FAQ #53 to explain why recipients of PPP loans of $2 million or more are receiving Loan Necessity Questionnaires. The SBA is reviewing these loans for eligibility, fraud or abuse and compliance with loan forgiveness requirements. The information provided on the questionnaires will help the SBA assess Borrowers’ loan necessity certifications. PPP Borrowers will have the opportunity to explain their need for the loan and therefore should consider seeking assistance with completing the questionnaires and, if appropriate, obtain an independent review of their original loan applications to validate that their application was made in good faith.

Loan Necessity Questionnaires

On October 26, 2020, the SBA announced the release of two new forms, Form 3509 Loan Necessity Questionnaire (For-Profit Borrowers) and Form 3510 Loan Necessity Questionnaire (Non-Profit Borrowers), to supplement the loan forgiveness applications of larger PPP Borrowers.  The forms are required to be completed by Borrowers with PPP loans of $2 million or more and must be completed within 10 days of receipt from the lender.

The Loan Necessity Questionnaires ask numerous questions regarding Borrowers’ operations and liquidity following submission of their loan applications.  When businesses applied for PPP loans in April they were asked to certify in good faith only that the loans were needed because of economic uncertainty. Neither the CARES Act nor the PPP loan application referred to measuring revenue declines or a Borrower’s other sources of liquidity, and now Borrowers are being asked to supply information that was not required back in April.

PPP FAQ #53

The new FAQ states that the information provided on the Loan Necessity Questionnaires will help the SBA assess the Borrower’s certification in their loan application that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The SBA’s assessment of a Borrower’s loan necessity certification will be based on the totality of the Borrower’s circumstances through a multi-factor analysis. The certification is required to have been made in good faith at the time of the loan application, even if subsequent developments resulted in the loan no longer being necessary. In its review, the SBA may consider the Borrower’s circumstances and actions before and after the Borrower’s certification to assist its determination as to whether the Borrower made the required certification in good faith at the time of its loan application.

After a Borrower submits its completed questionnaire, the SBA may request additional information to complete its review. Significantly, Borrowers will have an opportunity to provide a narrative response explaining the circumstances that provided the basis for the good faith loan necessity certification. This will supplement the optional questions included in the Loan Necessity Questionnaire which permit Borrowers to explain the context of their PPP loan application in the best possible light. The SBA will make a final determination that a Borrower lacked an adequate basis for its certification after reviewing any additional information that a Borrower chooses to submit.

According to the FAQ, a request to complete the Loan Necessity Questionnaire does not necessarily mean that the SBA is challenging a Borrower’s loan necessity certification, but the new forms have created uncertainty regarding the loan forgiveness approval process. Depending on their circumstances, Borrowers should consider seeking assistance with completing the Loan Necessity Questionnaire and obtaining an independent review of their original loan application to validate that they qualified for the PPP loan as applied for. In our opinion, such a review will give a Borrower a better chance of averting a full audit of their PPP loan.

Bennett Thrasher can assist you with the Loan Necessity Questionnaire to evaluate and help document answers to the following questions:

  1. Was the Borrower’s PPP loan application made in good faith?
  2. Did the Borrower meet the qualifications established by Congress and in accordance with the Interim Final rules and FAQs issued by the SBA?
  3. Did current economic uncertainty exist at the time the loan request was made to make the loan necessary to support the ongoing operations of the Borrower?
  4. Did the Borrower have other sources of liquidity that would preclude the need for the Borrower’s PPP loan?

We can address these questions and issue a Necessity Report, and our independent analysis will add support to your existing documentation. Our report can be referenced in the optional questions included within the Loan Necessity Questionnaire and/or submitted to the SBA if you are selected for an audit.

Contact Us

Bennett Thrasher will continue to monitor developments concerning PPP loans and the loan forgiveness process. If you have further questions regarding loan forgiveness and necessity questionnaires, or to learn more about our Necessity Reports, contact Zack Leder or Stephen Klein by calling 770.396.2200.