The SBA Issued Loan Necessity Questionnaires for Borrowers of PPP Loans $2M or More

In conjunction with its review of Paycheck Protection Program (PPP) loans that total $2 million or more, the U.S. Small Business Administration (SBA) will send loan necessity questionnaires to loan recipients. The information that is collected will inform the SBA’s evaluation of borrowers’ good-faith certification of their economic need. The SBA issued two versions of the loan necessity questionnaire, Form 3509, used by for-profit entities, and Form 3510, used by non-profit entities.  The notice was issued by the SBA on Monday, October 26, 2020, requesting approval from the Office of Management and Budget (OMB).

The loan necessity questionnaires require borrowers to provide additional information to validate the certification that “[c]urrent economic uncertainty makes this loan necessary to support the ongoing operations” of the borrowing entity made during the PPP loan application process. After the lender has reviewed the loan forgiveness application and provided a recommendation on forgiveness to the SBA, the SBA will likely request additional information from borrowers via the applicable loan necessity questionnaire.

Lenders who submitted loan forgiveness decisions will receive notification letters through the SBA Forgiveness Platform requesting that borrowers complete the questionnaire and provide general instructions about which documents to provide to the SBA.  The SBA stated that lenders are not required to verify or validate borrowers’ responses, or any supporting documents related to the questionnaires.  Borrowers that received a loan of $2 million or greater are required by the SBA to complete the applicable loan necessity questionnaire, along with the supporting documentation, within 10 business days of receipt.

Information Requested via Loan Necessity Questionnaires

The loan necessity questionnaires request information that supports business activity and liquidity assessments, including, but not limited to, the following:

  • Borrower’s gross revenue in Q2 of both 2020 and 2019
  • Borrower’s expenses in Q2 of both 2020 and 2019
  • If the borrower has been ordered to shut down by a state or local authority due to COVID-19
  • If the borrower has been ordered to significantly alter its operations by a state or local authority due to COVID-19
  • If the borrower voluntarily ceased or reduced its operations due to COVID-19
  • If the borrower began any new capital improvement projects not due to COVID-19
  • Borrower’s cash and cash equivalents as of the end of the last calendar quarter prior to the PPP loan application
  • If the borrower paid any dividend or other capital distributions, in excess of distributions to pay taxes, prior to the end of the Covered Period
  • If the borrower prepaid any outstanding debt prior to the end of its Covered Period
  • If any employees received compensation in excess of $250,000 on an annualized basis during its Covered Period
  • If any owners received compensation in excess of $250,000 on an annualized basis during its Covered Period
  • If the borrower received funds from any other CARES Act program

Tarlow is Here to Help – Please Contact Us with Questions

Tarlow Partners and staff members are closely monitoring guidance from the SBA, the Department of Treasury, Congress, and the IRS, as well as the PPP rules, tax-related legislation, and regulations. We are readily available to assist business owners and will continue to send updates about relevant news and changing guidelines. If you have any questions about this update or any tax and/or year-end planning matter, please contact your Tarlow advisor for assistance.