SBA Releases New FAQ on PPP Loan Necessity Questionnaire
On December 9, 2020, the Small Business Administration (SBA) released a new Paycheck Protection Program (PPP) Loan FAQ, FAQ 53, addressing the PPP Loan Necessity Questionnaire. The FAQ is reproduced below.
The new FAQ is consistent with U.S. Treasury Secretary Steven Mnuchin’s statements this summer that the Loan Necessity Questionnaire would be issued to recipients of PPP loans of $2 million or more.
Mere receipt of a questionnaire does not mean that the SBA is challenging a borrower’s certification. Rather, according to the SBA, the intent of the questionnaire is to enable the SBA to assess a borrower’s “certification in their loan application that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,’ as required by the CARES Act.”
FAQ 53 indicates that the SBA will employ a “multi-factor analysis” that will take into account “the totality of the borrower’s circumstances” as it assesses “whether the borrower had adequate basis for making the required good-faith certification, based on its individual circumstances in light of the language of the certification and SBA guidance.”
The FAQ also clarifies that the certification was “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.” However, despite this assurance, the SBA asserts that its review “may take into account the borrower’s circumstances and actions both before and after the borrower’s certification.”
The SBA will request completion of the questionnaire through the borrower’s lender. The borrower will have 10 business days from receipt of the request to complete and return the questionnaire to the lender.
Here is the text of the full FAQ:
- Question: Why are some PPP borrowers receiving a Loan Necessity Questionnaire (SBA Form 3509 or 3510)?
Answer: As previously announced, SBA is reviewing all loans of $2 million or more, and other loans as appropriate, for eligibility, fraud or abuse, and compliance with loan forgiveness requirements. As part of this process, SBA is providing a Loan Necessity Questionnaire to lenders for them to provide to PPP borrowers that, together with their affiliates, received loans of $2 million or more. Upon request from their lender, borrowers should return the completed questionnaire to their lender within 10 business days of receipt.
The information that borrowers provide on the questionnaire will help SBA assess those borrowers’ certification in their loan application that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” as required by the CARES Act.
A request to complete the Loan Necessity Questionnaire does not mean that SBA is challenging a borrower’s certification that is required by the CARES Act. SBA’s assessment of a borrower’s certification will be based on the totality of the borrower’s circumstances through a multi-factor analysis. As described in FAQ #46, SBA will assess whether the borrower had adequate basis for making the required good-faith certification, based on its individual circumstances in light of the language of the certification and SBA guidance. This 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, SBA may take into account the borrower’s circumstances and actions both before and after the borrower’s certification to the extent that doing so will assist SBA in determining whether the borrower made the statutorily required certification in good faith at the time of its loan application.
After a borrower submits its completed questionnaire, SBA may request additional information, if necessary, to complete its review. When additional information is requested, borrowers will have an opportunity to provide a narrative response to SBA explaining the circumstances that provided the basis for their good-faith loan necessity certification. SBA will make a final determination that a borrower lacked an adequate basis for its loan necessity certification after reviewing any additional information that a borrower chooses to submit. This targeted, multi-step approach will ensure the integrity of the evaluation process and expeditious processing, as well as properly allocate SBA’s finite resources to those loans that require additional review.