Early on in the PPP application process there was question and concern around applicants demonstrating the need for the loan. Relief was provided with the safe harbor for borrowers and their affiliated groups with loans under $2 million, deeming those borrowers as having borrowed the funds in “good faith.”
On October 26, 2020, the SBA announced its process for evaluating “good faith” certifications for the group of borrowers in the greater than $2 million threshold (which represents 14% of distributed funds). Two new forms were issued by the SBA to assist with the evaluation of the need: Form 3509, Paycheck Protection Program Loan Necessity Questionnaire (For-Profit Borrowers); and Form 3510, Paycheck Protection Program Loan Necessity Questionnaire (Non-Profit Borrowers).
Will all borrowers with loans over $2 million have to complete these forms?
It is not clear yet if every borrower with a PPP loan greater than $2 million will be required to complete these forms. The SBA will direct lenders to request the form directly from the borrower.
Will affiliated groups with loans over $2 million for the group be required to complete these forms?
The instructions to these forms indicate it applies to borrowers who with their affiliates received an original principal amount of $2 million or greater. However, the guidance is silent as to whether this applies to business concerns operating as a franchise that is assigned a franchise identifier code by the SBA.
When is Form 3509/3510 due?
The borrower will have 10 days from receiving the form from its lender to submit the questionnaire back to its lender.
What if the borrower does not complete the Form 3509/3510?
Failure to complete the form and submit it may result in SBA’s determination you were ineligible for either the PPP loan, the PPP loan amount, or any forgiveness amount claimed, and SBA may seek repayment of the loan.
What types of questions are asked on these forms?
The questions are primarily yes/no questions. There are questions that require more detail surrounding the borrower’s liquidity and cash position during the covered period.
How can borrowers prepare to provide support to the SBA for the need of a PPP loan?
In addition to reviewing the required forms and having information to complete the questions, we recommend that borrowers with loans in excess of $2 million document the determination made related to need for a PPP loan at the time of the loan application. A memo with the analysis of trends, liquidity, collectability of receivables, supply chain and personnel issues, and business interruption issues should be completed by management and retained as a part of the PPP need support.
Please contact a Mitchell Wiggins team member if you have any questions related to these forms or need further clarification.