PPP loan necessity questionnaire
Authored by Michael Wronsky

The Small Business Administration (SBA) recently released draft questionnaires that must be completed by for-profit (Form 3509) and not-for-profit (Form 3510) organizations that, together with their affiliates, received Paycheck Protection Program (PPP) loans of $2 million or more. The questionnaires will be issued by lenders to verify the certification made by borrowers as part of the loan application process that “current economic uncertainty” made the loan request necessary to support business operations. Borrowers must return the completed questionnaires to the lenders within 10 days of their receipt, for subsequent submission to the SBA. The instructions indicate that failure to complete and return the questionnaire within the 10-day time frame could result in the SBA determining the borrower was ineligible for their loan or forgiveness. The questionnaires are not currently available on either the SBA or Department of Treasury (Treasury) websites, and it is unclear whether they will be finalized in their current form.

While, as noted above, borrowers were required to certify in good faith that their PPP loans were needed to withstand the economic uncertainties created by COVID-19, little to no official guidance from the SBA or Treasury was previously available to identify how this certification would be examined for compliance. Presumably, these draft questionnaires provide insight into the facts and circumstances that will be evaluated. That said, the questionnaire requests information for several items (including supporting documentation in some instances) that do not bear any relevance to the determination of eligibility for a PPP loan or forgiveness under the Coronavirus Aid, Relief, and Economic Security (CARES) Act or subsequent guidance from the SBA or Treasury. These items include, but are not limited to:

  • The borrower’s 2020 second-quarter revenue, relative to previous quarters,
  • Whether the borrower’s operations were shut down or significantly altered by a government order due to COVID-19,
  • Whether the borrower began any new capital improvement projects unrelated to COVID-19 between March 13, 2020, and the end of its covered period,
  • The borrower’s cash and cash equivalents position on the last day of the calendar quarter that immediately preceded the date of their loan application,
  • Whether the borrower made any dividend or other capital payments to its owners, apart from tax distributions,
  • Whether the borrower made any prepayments on its debts between March 13, 2020, and the end of its covered period, and
  • Whether any of the borrower’s employees were compensated in an amount that exceeds $250,000 on an annualized basis during the covered period.

The draft questionnaires indicate that the SBA may request additional information after receipt of the responses to complete their review of the loan and/or forgiveness eligibility and that the “determination will be based on the totality” of the borrower’s circumstances. It would appear that based on this language, the questionnaire will be used to assist the SBA in determining which loans should be reviewed with greater scrutiny. It should be noted borrowers will have the opportunity to appeal the SBA’s decision with respect to loan and forgiveness eligibility.

Lastly, it should also be noted that while not binding authority, pursuant to an SBA/Treasury FAQ, if the SBA does determine a borrower lacked adequate basis for the certification of loan necessity, the borrower will not face administrative enforcement or penalty if the loan is repaid upon receiving notice of ineligibility from the SBA.

We encourage you to reach out to your Baker Tilly tax advisor regarding how the above may affect your situation.

For more information on this topic, or to learn how Baker Tilly specialists can help,  contact our team.

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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

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