All paycheck protection program (PPP) loan applicants under the CARES (Coronavirus Aid, Relief, and Economic Security) Act had to certify in good faith that the current economic uncertainty made the loan application PPP ” necessary… As we wrote previously, this certification of economic necessity has caused much uncertainty and consternation since the enactment of the PPP. Additionally, the Small Business Administration (SBA) has said it will review all PPP loans over $ 2 million, following the lender’s submission of the borrower’s forgiveness request.

On October 26, 2020, the ASB published a note to the Federal Register to seek approval from the Office of Management and Budget to publish Form 3509, a Loan Necessity Questionnaire for For-Profit Borrowers, and Form 3510, a Loan Necessity Questionnaire for Borrowers at non-profit. In an effort to maximize the integrity of the PPP and protect taxpayer resources, the SBA will send loan necessity questionnaires to lenders for distribution to borrowers who, along with their affiliates, have received PPP loans of $ 2 million or more. . The questionnaire provides an overview of the factors the SBA will take into consideration when considering whether a borrower’s economic necessity certification was appropriate.

The questionnaire must be completed and returned with supporting documents to the lender within 10 working days of receipt. If you do not complete the questionnaire and provide supporting documents, the SBA may determine that the borrower was not eligible for the PPP loan, the PPP loan amount, or any rebate amount claimed, and the SBA may request repayment of the loan or pursue other available remedies. Additionally, if the SBA determines that the borrower was not eligible for the PPP loan, the lender will not be eligible for the processing fee and the processing fee will be subject to clawback by the SBA.

The Loan Needs Questionnaire consists of two parts: (i) an assessment of business activity and (ii) an assessment of liquidity. Supporting documents and written responses are required for both parties.

The evaluation of the commercial activity requires written answers and supporting documents concerning:

• the borrower’s gross income in the second quarter of 2020 and 2019 (seasonal businesses can use the third quarter of 2020 and 2019, while businesses that did not exist in the second quarter of 2019 can use the first quarter of 2020);
• if, since March 13, 2020:
  • the borrower had to be closed by a state or local authority due to COVID-19;
  • the borrower has been required to significantly modify its operations by a state or local authority due to COVID-19; and
  • the borrower has voluntarily ceased, reduced or modified their operations due to COVID-19; and
• Whether between March 13, 2020 and the end of the loan forgiveness period, the borrower has started new non-COVID-19 capital improvement projects.

The liquidity assessment requires written responses and supporting documents regarding:

• the amount of cash and cash equivalents held by the borrower on the last day of the calendar quarter immediately preceding the date of the PPP loan application;
• between March 13, 2020 and the end of the period covered by the loan forgiveness:
  • whether the borrower has paid dividends or other distributions of capital (other than for estimated tax passed on payments) to its owners; and
  • whether the borrower has made early repayments of the debt;
• during the period covered by the cancellation of the loan, if the borrower has paid compensation to employees or owners in excess of $ 250,000 on an annualized basis;
• on the date of the PPP loan request:
  • whether the borrower’s equity securities were listed on a national securities exchange;
  • the market capitalization of the borrower, or if it is not listed on the stock exchange, its book value (equity value), on the last day of the calendar quarter immediately preceding the date of the PPP loan application;
  • whether the borrower was a subsidiary (50% or more owned) of another company and, if so, information about the parent company;
  • whether a publicly traded company, private equity firm, venture capital firm or hedge fund held 20% or more of the borrower’s equity; and
  • whether the borrower was a subsidiary or subsidiary (50% or more owned) of a foreign company or a department, agency or instrument of a foreign state; and
• if the borrower has received funds under any other program of the CARES Act, excluding tax benefits.