The Small Business Administration (SBA) has begun sending Paycheck Protection Program (PPP) Loan Statement of Need Questionnaires to review the good-faith certification of economic need that borrowers made on PPP loan applications over $2 million. Form 3509 is for for-profit businesses, while Form 3510 applies to non-profit entities.

The PPP Loan Necessity Questionnaire is 9 pages with 13 questions about liquidity comparisons, debt repayment, compensation, private equity, etc. The questionnaires are due to the lender within ten business days of receipt.  The lender has five business days to provide the responses to SBA.

The guidance on the statement of need certification available back in April 2020 when many businesses were first applying for their PPP loan was limited and raised more questions. The ‘Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which authorized the PPP program, laid out the borrower’s requirements for credit elsewhere and certification of need (paraphrased here):

  • During the covered period, the requirement that a small business concern is unable to obtain credit elsewhere, shall not apply to a covered loan.
  • That the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
  • Acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments;
  • That the eligible recipient does not have an application pending for a PPP loan for the same purpose.
  • During the period beginning on February 15, 2020 and ending on December 31, 2020, the eligible recipient has not received a PPP loan for the same purpose.

On April 23, 2020, the SBA issued FAQ #31 providing guidance regarding a business’ liquidity.

  1. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer:  In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary.

Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that, “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.

For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.

What to Do Next

For larger loans or more complex issues (or if you think you would benefit from professional advice with your smaller PPP loan forgiveness), our COVID-19 Advisory team can help – contact us for a consultation. We also offer set, fixed-cost service levels for PPP loan forgiveness consulting. If your loan is $2 million or less, take the PPP Loan Forgiveness Quick Test and one of our professionals will contact you with recommended next steps.

Contact us for PPP loan forgiveness consulting, or for other issues related to the CARES Act. We’re here to help.

Barnes Dennig COVID-19 Advisory Team