December 17, 2020
When the Small Business Administration (SBA) announced in late October that it will introduce a new Loan Necessity Questionnaire it created concerns about loan forgiveness eligibility. Borrowers with loans of $2M or greater are required to complete either SBA Form 3509 or 3510 depending on whether the borrower is a for-profit business or a nonprofit organization. The purpose is to help the SBA determine, for loan forgiveness purposes, whether the good faith certification about economic necessity made the loan necessary to support ongoing operations. Unfortunately, there were no comments or guidance issued when the announcement was originally made leaving the 42,000 impacted borrowers with more questions than answers. The good news is earlier this month the Paycheck Protection Program Loans FAQs (#53) were updated providing important information on the questionnaires. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key points below.
Why the New Requirement?
The SBA is reviewing all loans of $2M or more, and other loans as appropriate, to validate eligibility, uncover instances of fraud and abuse, and to ensure compliance with forgiveness requirements.
When is the Due Date?
The questionnaires will not be distributed by the SBA directly but will be made available through the lending institution. When received a borrower is required to return the completed document within 10 business days.
Is the SBA Challenging Our Certification?
Many borrowers are concerned that the request to complete the questionnaire means the SBA is challenging the original certification. However, this is not true. A request to complete the Loan Necessity Questionnaire does not mean the certification is being challenged. In fact, the SBA’s assessment of certification will be based on a number of factors. Remember, the certification needs to have been made in good faith at the time of application, even if subsequent events mean a loan was unnecessary.
What Factors will the SBA Review?
The SBA will consider the borrower’s circumstances. both before and after, to determine if the certification was made in good faith.
Will Additional Information Need to be Submitted?
In some cases, the SBA may request additional information and documentation to complete the review. When additional information is requested, a borrower will be able to provide a response explaining the circumstances that resulted in certification. It was also noted that once all information, documentation and responses have been submitted, the SBA will issue a decision about whether the loan necessity certification was valid.
What is the Penalty for Non-Compliance?
If the borrower fails to complete the questionnaire or provide requested information, then the SBA may determine the good faith certification was not made. If this occurs the borrower will become ineligible for loan forgiveness and may be requested to repay the loan or other actions as deemed necessary.
It is important for an Atlanta business or nonprofit to complete a Loan Necessity Questionnaire if requested to do so by the lender. Borrowers should pay careful attention to the questions asked as the outcome could result in loan forgiveness exclusion. For this reason, it is important to consult with a qualified advisor to help you through the PPP loan forgiveness process. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional details please call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.