The Small Business Administration (the "SBA") has issued a new questionnaire that all Paycheck Protection Program ("PPP") borrowers that received a loan of $2 million or more must complete. Based on current commentary and available information, this requirement will not be asked of parties who received less than $2 million in PPP funds. The new questionnaire (Form 3509 for for-profit borrowers and Form 3510 for non-profit borrowers) (the "Questionnaire"), is designed to collect additional information from such larger borrowers. Interestingly, the SBA intends to use this information in evaluating the required good-faith certification that economic uncertainty made their loan requests necessary (the "Necessity Certification").
The comment period for the Questionnaire ended on November 25 and now the Office of Management and Budget ("OMB") has up to 30 days to complete its review process. Despite the lack of final approval from OMB, the Questionnaire has been available on the SBA's platform for weeks and some lenders have already sent the Questionnaire to borrowers. All borrowers that received loans of $2 million or more are required to complete and return the Questionnaire to their lender within 10 business days from receipt.
Generally, a governmental agency may not require an answer to a government form if the form has not been approved by OMB. Therefore, borrowers that require additional time to respond may have a solid basis for requesting such additional time. If you have received the Questionnaire from your lender, you should contact your lender and advisors to determine when it must be returned.
When applying for a PPP loan, applicants were required to make the Necessity Certification. Thereafter, the SBA issued guidance indicating that loans of $2 million or more would be reviewed to determine whether or not the borrower was eligible. The Questionnaire is part of the process established to determine an individual borrower's eligibility. It is unclear whether this process will include the application of hindsight by the SBA. If hindsight is applied, it is expected that legal challenges may result in some circles.
The consequences of a determination by the SBA that "current economic uncertainty" did NOT make a PPP loan "necessary to support the ongoing operations of the [borrower]" may be very serious. The SBA may determine that a borrower was not eligible, resulting in the lender possibly calling in the loan immediately or the SBA denying forgiveness. In extreme cases, the SBA could refer borrowers to the Department of Justice to investigate the potential for criminal liability.
The Questionnaire and the intent behind it have caused concern among borrowers as it seems to indicate that the SBA intends to search for and investigate possible fraud much more diligently and using different standards than much of the early guidance on PPP had suggested. Some commentators have asserted that a new standard is being applied retroactively that bears little resemblance to the topics that were part of the initial determination of necessity during the application process.
The Questionnaire requires borrowers to disclose specifics regarding the borrower's gross revenues, capital improvement projects, dividend payments, compensation and ownership structure. Borrowers should answer all questions honestly and be prepared to present supporting documentation. Furthermore, the SBA has provided space for borrowers to provide commentary and additional information. Borrowers should take advantage of the opportunity to explain their individual circumstances where appropriate. As often commented by us and others in the past, documentation of your PPP loan and uses of its funds is key.
Whether you have received the Questionnaire or not, if you received a PPP loan of $2 million or more, now is the time to review you supporting documentation and begin considering how you will answer the questions presented in the Questionnaire. The Questionnaire is available for review here. Contact your WHP counsel with any questions or concerns you may have.
This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.