What Is a PPP Loan Necessity Questionnaire, and What Do You Need to Do?

Paycheck Protection Program (PPP) loan recipients may soon have yet another form to complete to be eligible for loan forgiveness. On October 26, the SBA published a 30-day notice for comments in the Federal Register, which included two “loan necessity questionnaires”:  SBA Form 3509, which targets for-profit borrowers, and SBA Form 3510, which impacts nonprofit borrowers.

These forms are meant to be used as a review of the good faith certification borrowers made when they first applied for their PPP loan. Currently, the forms are under review and open for comments. Once the comment period closes around Thanksgiving, the Office of Management and Budget will review, make any adjustments they deem necessary and then release the forms. At that time, lenders will be able to begin sending applicable borrowers the questionnaire, which will have to be completed and returned within 10 business days of receipt so lenders can upload it to the SBA portal.

Who Might Need to Complete a PPP Loan Necessity Questionnaire?

While PPP loan applications already included a good faith certification that economic uncertainty made the loan necessary to support ongoing operations, per the SBA, the questionnaire is meant to “maximize program integrity and protect taxpayer resources” by reviewing this good faith certification.

As the forms stand now, all borrowers who received a PPP loan of $2 million or more, or collectively with affiliates received total loans of $2 million or more, will be required to complete and submit along with supporting documentation. 

What Does the For-Profit Borrower Form (Form 3509) Include?

Currently, Form 3509 that was submitted for comments includes the following items.

• Business Activity Assessment. This section includes eight questions related to:
  • Disclosing and comparing second quarter 2020 revenue versus the same period in 2019
  • Being mandated to shut down or significantly alter operations
  • Voluntarily altering operations or shutting down
  • Making capital improvements
• Liquidity Assessment. This section has 13 questions related to:
  • Cash and cash equivalents on the last day of the quarter before applying for the PPP loan
  • Detailed request for distributions or dividends you paid from March 13 through the end of the covered period (tax distributions based on 2020 tax estimates are carved out)
  • Prepayment of any debt
  • Compensation to employees or owners that exceed $250,000 on an annualized basis
  • Whether your equity securities were listed on a national securities exchange
  • If any publicly traded company owns 20% or more of any class of your outstanding equity securities
  • What the book value (shareholder’s equity value) of your entity was on the last day of the quarter before applying for your PPP loan
  • Whether your entity is a subsidiary of another company
  • Whether on the date of your loan application 20% or more of any class of your outstanding equity securities was owned by a private equity firm, venture capital firm or hedge fund
  • Whether your entity is an affiliate or subsidiary of a foreign, state owned enterprise or a department or agency of a foreign state
  • Whether you received any other funds from any CARES Act program other than PPP 
• Certifications. You must certify that you have the authority to sign and submit the form, that the information you provided is true and correct, and that you are aware of the penalties and prosecution for knowingly making false statements.

What Does the Non-Profit Borrower Form (Form 3510) Look Like?

The SBA Form 3510 for Non-Profit Borrowers in its current form has a very similar format but replaces the Business Activity Assessment with similar questions under the Non-Profit Activity Assessment. The Liquidity Assessment also has similar questions but is expanded for additional inquiries on endowments, schools and universities, and healthcare services. 

What to Do Now

While we wait for the comment period to come to a close and for final forms to be issued, PPP recipients should become familiar with the forms, as the potential questions may inform business decisions you are making today. Keep your tax advisor in the loop throughout the process.

Contact Adam Hill, Dave Sobochan or a member of your service team to discuss this topic further.

Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.