SBA Requests Additional Information to Verify Necessity of PPP Loans
November 3, 2020
By: Eric N. Fischer
On October 26, 2020, the Small Business Administration (SBA) released a notice announcing that Loan Necessity Questionnaires would be sent to all PPP Borrowers that, together with their affiliates, received PPP loans in excess of $2,000,0000. The purpose of the Questionnaires is to assist the SBA in determining the appropriateness of the Borrower’s certification that economic uncertainty made the loan request necessary to support ongoing operations and whether the Borrower complied with the requirements of PPP FAQs 31, 37 and 42.
After a lender submits a borrower’s Application for Forgiveness to the SBA for review, the SBA may then make a request for additional information from the Borrower via the Loan Necessity Questionnaire. The Questionnaire, along with supporting documentation, is due within 10 business days of receipt.
The Questionnaire includes, but is not limited to, questions relating to the following:
- The Borrower’s gross receipts -- and for nonprofits its contributions in Q2 of 2020 and 2019
- The Borrower’s expenses in Q2 of 2020 and 2019
- Whether the Borrower has been ordered to shut down by a state or local authority due to COVID-19
- Whether the Borrower has been ordered to significantly alter its operations by a state or local authority due to COVID-19
- Whether the Borrower voluntarily ceased, reduced or altered its operations due to COVID-19
- The Borrower’s approximate additional cash outlays for mandatory alterations and voluntary alterations
- Whether the Borrower engaged in any non-COVID-19 related capital improvement projects during the Covered Period
- The Borrower’s cash, savings, and temporary cash investments prior to the PPP application
- The amount of dividends and distributions paid by the Borrower between March 13, 2020 and the end of the Covered Period.
- Whether the Borrower prepaid any outstanding debt between March 13, 2020 and the end of its Covered Period
- Whether any employee, including an owner-employee, received compensation in excess of $250,000 on an annualized basis during its Covered Period
- The book value of the Borrower prior to the date of the PPP loan application
- Whether the Borrower received funds from any other CARES Act program
The Questionnaire requires that related supporting documentation be provided for responses.
The loan necessity forms do not include any new evaluation standards or metrics, but they suggest there will be additional scrutiny of Borrowers that had significant cash on hand at the time of application, are owned by publicly traded companies, are owned by private equity or venture capital firms, and/or compensated employees or owners in an amount that exceeds $250,000 on an annualized basis over the Covered Period.
The Questionnaire indicates that failure to complete the Questionnaire and to provide the required supporting documents may result in a determination that a Borrower was ineligible for some or all of the PPP loan and the SBA may seek repayment or “pursue other available remedies”.
Please contact your Nyemaster Goode attorney if you have follow up questions on the Payroll Protection Program Flexibility Act, the Paycheck Protection Program, or other COVID-19 related relief.