Alerts and Updates

Small Business Administration Releases New FAQ on Loan Forgiveness Review

December 22, 2020

In connection with the loan forgiveness application process, the SBA is reviewing all loans of $2 million or more. 

On December 9, 2020, the Small Business Administration (SBA) added Question 53 to its Frequently Asked Questions (FAQs) document. The new question provides further insight into the SBA’s Paycheck Protection Program (PPP) loan forgiveness review process, especially for borrowers with PPP loans of at least $2 million and new Forms 3509 and 3510, and expands on the good-faith certification discussed in Question 46. This Alert summarizes the key points from the update to the FAQs.

The key points for PPP loan borrowers are:

  • In connection with the loan forgiveness application process, the SBA is reviewing all loans of $2 million or more. As part of this process, such borrowers will be required to complete a Loan Necessity Questionnaire on SBA Form 3509 or 3510. This information will help the SBA assess a borrower’s certification in its initial PPP loan application that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
  • A request by the SBA to complete the Loan Necessity Questionnaire does not necessarily mean that the SBA is challenging a borrower’s economic uncertainty certification. Rather, the SBA’s assessment of a borrower’s certification will be based on many factors and in the overall context of the borrower’s circumstances at the time of the loan application (as further described below).
  • Recommendation: Borrowers that are required to complete the Loan Necessity Questionnaire will have to provide detailed information regarding their business operations. If a borrower with a loan of $2 million or more has not submitted its loan forgiveness application, it is recommended to have available the needed information to complete the Loan Necessity Questionnaire before the loan forgiveness application is filed. This will alleviate any delay in meeting the 10-day filing deadline, which will likely have adverse consequences if missed. It is also advisable to consult with counsel and other advisers in preparing the response to the Loan Necessity Questionnaire.

Loan Necessity Questionnaire

As discussed in a previous Alert, borrowers of PPP loans of $2 million or more will be subject to reviews by the SBA for eligibility, fraud or abuse, and compliance with loan forgiveness requirements. As part of this process, the SBA is giving PPP lenders Loan Necessity Questionnaires (Forms 3509 and 3510) to provide to borrowers that received loans of $2 million or more. Borrowers receiving the questionnaires should return completed questionnaires to their lenders within 10 business days of receipt. There has been no guidance from the SBA regarding whether the review of the Loan Necessity Questionnaires will affect the statutory 90-day review period for the SBA’s review of a loan forgiveness application. 

SBA Assessment of Borrower Certification

The SBA has stated that a request to complete the Loan Necessity Questionnaire does not mean that the SBA is challenging a borrower’s certification made on its initial PPP loan certification. In assessing a borrower’s certification, the SBA will determine whether a borrower had adequate basis for making the good-faith certification, based on the borrower’s circumstances in light of the language of the certification and SBA guidance. The certification on the initial loan application must have been made in good faith at the time of the loan application, even if later events resulted in the loan no longer being necessary. The SBA may take the borrower’s circumstances and actions both before and after the certification into account in determining whether the borrower made the certification in good faith.

After a borrower submits the questionnaire, the SBA may request additional information. In response, the borrower will have an opportunity to provide a narrative response explaining the basis for certifying the necessity of a PPP loan. The SBA will then make a final determination as to whether the borrower had an adequate basis for making the loan necessity certification after reviewing any additional information the borrower chooses to submit.

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