PPP Update – Management of Needs Questionnaire for PPP Loans of $ 2 Million or More | Bowditch & Dewey

The US Small Business Administration (SBA) recently announced its intention to require Paycheck Protection Program (PPP) lenders to issue questionnaires on the “need for a loan” to all borrowers in the United States. PPP loans of $ 2 million or more. On October 26, 2020, the SBA issued a notice seeking comment on the two proposed forms of questionnaires on the need for a loan – one for for-profit borrowers (Form 3509) and one for non-profit borrowers (Form 3510). These questionnaires were put in place to “optimize program integrity and protect taxpayer resources” by collecting additional information that will be used by SBA loan examiners to assess the good faith certification made on [the] PPP borrower application.


As of August 8, 2020 (PPP program closing date), the SBA had approved more than 5 million loans worth over $ 525 billion. With an average loan of just over $ 100,000, at first glance, a large majority of approved loans were small enough to avoid audit inquiries and borrower reports regarding the “need” of the loan to support operations. ongoing trade in light of current economic conditions. uncertainty. As stated in a previous Bowditch Alert, the SBA-approved borrower application form 2483 required good faith certification from an authorized representative of the borrower that “[c]The current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations. In guidelines released in April 2020, the SBA clarified that borrowers should take into account “their current business activity and their ability to access other sources of sufficient liquidity to support their ongoing operations in a manner that does not harm not significantly to the company ”.

Many viewed this certification and the related standard as arbitrary, too subjective, and without sufficient guidelines or criteria, leading to a great deal of anxiety and concern about subsequent audits and questioning whether a borrower had it in place. has sufficient cash reserves, business prospects and other adequate sources. liquidity. The SBA and the Treasury have publicly warned companies that certification of necessity will be subject to audit and severe penalties if investigators later determine that the economic situation and outlook is such that the certification is not, or could not have been, made in good faith. After these initial warnings, the SBA limited the audit outlook by allowing a safe harbor for all loans with a principal amount less than $ 2 million.


The SBA questionnaires raise many issues and concerns for borrowers with larger payrolls and, as a result, larger loan amounts. A borrower has only 10 working days from receipt to give the completed questionnaire to his lender, along with any supporting documents. Form 3509, applicable to for-profit borrowers, groups the questions into a “Business Activity Assessment” and “Liquidity Assessment” and requires the borrower to submit supporting documentation to support their responses.

The business activity assessment covers the following:

(i) gross revenue for Q2 2020 compared to 2019; (ii) whether the borrower is subject to a local or state closure order; (iii) whether the borrower was subject to a state or local ordinance which significantly altered its operations; (iv) whether the borrower has voluntarily ceased or modified its operations due to COVID-19; and (v) whether the borrower had any capital improvement projects since March 2020 unrelated to COVID-19.

The liquidity assessment examines various financial measures, including, but not limited to the following:

(i) cash and cash equivalents immediately prior to submission of the loan application; (ii) whether the borrower has paid dividends or distributions to its owners; (iii) early repayment of any outstanding debt before maturity; (iv) declaration of wages to well-paid employees and owners (over $ 250,000 per year); (v) market capitalization (if listed on a stock exchange) and book value of equity (if private); and (vi) the existence of a parent company or affiliates, including private equity, of the borrower.


A general concern with the questionnaire is that it only presents an overview of financial conditions and is partly dependent on the level of activity and income outcomes which were likely uncertain at the time the loan application was submitted. . The subjective nature of the necessity standard has led to many valid questions from borrowers as they have certified the necessity of the loan:

  • what level of cash reserves was sufficient to support ongoing business operations?
  • What factors were present to allow a business to accurately predict Q2 2020 revenue?
  • to what extent will unknown supply chain issues negatively impact business?

When completing the questionnaire, it is recommended that borrowers analyze and document all the factors that reasonably played into their determination that the PPP loan was necessary to support ongoing business operations. Perhaps a borrower had some cash reserves at the time they applied for the loan, but these reserves may also have been allocated to a number of budget deficits, decreased income, or increased spending on the loan. exploitation, whether or not related to COVID-19. In addition, a borrower’s second quarter turnover, on its own, can be misleading if, for example, general business activity was down but income was higher due to a transaction or of a unique and unexpected sale.

After analyzing the additional business activity and liquidity information, borrowers are recommended to work with attorneys and their accounting professionals to gather all additional facts and documents to support the nature of good. faith of the certification of necessity. In doing so, borrowers will be better able to present all the facts and circumstances that influence the objective data sought by the SBA in the questionnaire. Finally, borrowers should complete the “optional” section (1000 characters max.) At the end of the Business Activity Assessment and the Liquidity Assessment, in order to present any additional elements that affect the information sought by the questionnaire.

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