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SBA Issues New Requirements for PPP Loan Justification

5 November 2020

We keep saying the fat lady hasn’t sung yet on guidance concerning loans disbursed pursuant to the Paycheck Protection Program (PPP), and we keep being proved right.

The U.S. Small Business Administration (SBA) announced on October 26, 2020, that it would be sending out mandatory questionnaires to borrowers, both for-profit and non-profit, whose loans were in amounts greater than $2 million, for them to complete and submit to their lenders.

Once a borrower receives the questionnaire from the SBA, 10 days only are allowed for completion and submission of the form to the lender, so we recommend you start amassing your information now, if you don’t have it ready to hand.

In this blog post, we discuss the SBA’s Loan Necessity Questionnaire For-Profit Borrowers Form 3509.

The questionnaire requires the following:

Business Activity Assessment

This section requires information to document the impact of COVID-19 including:

  • Gross revenues for the calendar second quarter of 2020 versus the calendar second quarter of 2019 (seasonal borrowers may use the calendar third quarters of 2020 and 2019 for comparison). For businesses started in 2020, use the calendar first quarter of this year for comparison with the second quarter.
  • State or locally mandated, or voluntary, business closures, restrictions, or alterations, including the duration of closures and/or restrictions and the cost of alterations borne by the borrower.
  • The disclosure of any capital improvements made between the National Declaration of Emergency made by the President on March 13, 2020, and the end of the PPP loan’s eligible forgiveness covered period.

Liquidity Assessment

This section requires information such as:

  • Cash position of the borrower at the end of the quarter preceding the PPP loan application.
  • Whether borrower has paid any dividends or cash distributions other than pass-through estimated tax payments between March 13, 2020, and the end of the covered period.
  • Whether borrower has paid any dividends or cash distributions other than pass-through estimated tax payments between March 13, 2020, and the end of the covered period.
  • The number of owner and non-owner employees, if any, who were compensated at a rate exceeding $250,000 on an annualized basis, and total compensation for all such employees during the covered period.
  • Whether the borrower was publicly traded in the United States, whether it was a subsidiary of another company, traded either in the U.S. or abroad, and, if so, market capitalization(s) as of the date of the PPP loan application. Borrowers must also disclose whether 20% or more of the business in question is owned by a private equity, venture capital, or hedge fund.
  • If the borrower’s business was not listed on any national securities exchange, what was the shareholders’ equity value of the business as of the last date of the calendar quarter prior to the PPP loan application?
  • Whether the borrower received funds from any program pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act other than the PPP, and how much.

Each section includes a space for additional comments and information, but with a 1,000-character limit, so we suggest you choose your wording carefully.

We strongly urge borrowers with PPP loans greater than $2 million to consult with us to determine how to best present this information to your lender and the SBA.

Please click here to email us directly – we are here to help you!

Until next Wednesday –

Peace,

Eric

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