On October 26, 2020, the Small Business Administration (SBA) issued a notice in the federal register seeking approval from the Office of Management and Budget (OMB) to release two new forms related to the forgiveness process as part of the Paycheck Protection Program (PPP). The forms, Form 3509 for for-profit businesses and Form 3510 for nonprofit entities, will serve as loan necessity questionnaires and will be required to be completed by PPP borrowers who received a PPP loan of $2 million or more. It’s important to note these forms have not been officially released by the SBA, and they are subject to a 30-day public comment period, which expires November 25, 2020.
We believe the forms will be sent to borrowers after the lender submits the borrower’s loan forgiveness application to the SBA and recommends a decision on loan forgiveness. Borrowers will be required to complete the questionnaire and provide supporting documentation within 10 days of receipt.
The SBA’s loan necessity questionnaire is broken into two sections and the information requested includes, but is not limited to, the following:
Business Activity Assessment
- Borrower’s gross revenue in the second quarter of 2020 and 2019 (different time period may apply for seasonal borrowers)
- Since March 13, 2020, whether the borrower has been ordered to shut down by a state or local authority due to COVID-19
- At any time since March 13, 2020, whether the borrower has been ordered to significantly alter its operations by a state or local authority due to COVID-19
- At any time since March 13, 2020, whether the borrower has voluntarily ceased or reduced its operations due to COVID-19
- Between March 13, 2020 and the end of the covered period, whether the borrower began any new capital improvement projects not due to COVID-19
- Borrower’s cash and cash equivalents as of the last day of the calendar quarter immediately before the date of the borrower’s PPP loan application
- Whether the borrower has paid any dividends or other cash distributions (other than for estimated tax payments) 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 the covered period
- During the covered period, whether any employee received compensation in excess of $250,000 on an annualized basis
- Whether the borrower received funds from any other CARES Act program
- Whether more than 20% of any class of the borrower’s outstanding equity or securities was owned by a private equity firm, venture capital firm or hedge fund
Lenders and borrowers have already expressed concern that the questionnaire adds uncertainty to the loan forgiveness process. The American Institute of Certified Public Accountants (AICPA) has reportedly reached out to the SBA to gain a better understanding of the nine-page questionnaire and how it will be used to support the borrower’s good-faith certification. We hope the SBA will issue guidance on the questionnaire in the coming days so borrowers can gain a better understanding of the questionnaire and how it affects the loan forgiveness process. We will continue to monitor the situation and keep you updated.
If you have questions about PPP loans and the new developments mentioned above, contact your Warren Averett advisor, or request one of our team members to reach out to you.