Article written by:
Rebekah Smith, CPA, CFF, CVA, MAFF
Director of Forensic & Dispute Advisory Services
Dustin Minton, CPA, MBA
Director, Restaurant Services
Director, Accounting & Business Advisory Services
On December 9, 2020, the Small Business Association (‘SBA’) issued a new Frequently Asked Question (‘FAQ’) #53 for the Paycheck Protection Program (‘PPP’). This is the first guidance issued by the SBA regarding Loan Necessity Questionnaire Forms 3509 (for-profit) and 3510 (nonprofit) since borrowers with loans in excess of $2 million have been asked to complete the form after applying for forgiveness.
The FAQ does appear to clarify some common questions, including:
- The questions in Form 3509/10 have made several borrowers uneasy, wondering if the request to fill out the form 3509/10 means that the SBA believes the borrower did not “need” the PPP Loan.
- FAQ #53 states (emphasis added), “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. The SBA’s assessment of a borrower’s certification will be based on the totality of the borrower’s circumstances through a multi-factor analysis.”
- Several companies are experiencing better 2020 performance than anticipated in March/April, when the certification was completed, and are concerned that means that the SBA will automatically conclude the loan was not necessary.
- FAQ #53 seems to suggest that the totality of the circumstances will be taken into account. Specifically, it states (emphasis added), “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.”
- FAQ #53 also suggests that the SBA will take into account other factors that have positively influenced 2020 performance and the borrower’s position when he/she applied (emphasis added): “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.” This could be considering whether a company serves many clients who received PPP loans and thus were able to maintain its own business because its customers “survived” or if a borrower was able to adapt its operations to preserve the business.
- We have had discussions with borrowers on whether to submit their good faith memo with Form 3509/10.
- Our advice to borrowers has been to not “rush” the process and to wait for the SBA to ask for documents of that nature. Thus far, our experience has been that if selected for audit, the SBA will ask for documents required to be maintained, but not submitted, with the application, which would include the memo. At that point, it would be appropriate for a borrower to submit its good faith memo.
- FAQ #53 seems to concur with our advice describing the process as a “targeted, multi-step approach” and stating “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.”
If you have a loan over $2 million, you will likely be required to fill out Form 3509/10 after submitting your application for forgiveness. Given the process outlined here, while you would not submit the documents required to be maintained, but not submitted, with the forgiveness application, we do suggest you ensure those documents are complete and available should the SBA request them.
If you have any questions or if we can provide you with any assistance regarding the PPP forgiveness process, please do not hesitate to reach out to any member of the GBQ PPP team, including Rebekah Smith, Dustin Minton, or Jeremy Bronson.