PPP "LOAN NECESSITY" QUESTIONNAIRES FROM SBA

As part of the SBA’s effort to audit borrowers who received a Paycheck Protection Program (PPP) loan of at least $2 million, the SBA has issued new loan necessity questionnaires. There are two questionnaires, one for for-profit entities and one for nonprofit entities.

At the time a borrower applied for a PPP loan, the borrower had to certify that “current economic uncertainty makes this loan necessary to support the ongoing operations of the applicant”. While the SBA never issued definitive criteria for the necessity certification, through FAQs they had indicated that borrower must make a good faith certification taking into account their current business activity and their ability to access other sources of liquidity to support operations in a manner that is not significantly detrimental to the borrower. After a number of public companies had disclosed receipt of a PPP loan, the SBA also announced that they would review every loan application of $2 million or more to ensure borrowers met the necessity certification.

Each of the questionnaires are geared to assist the SBA in determining whether the borrower was able to meet the required certification. A few things to note:

• Consistent with the SBA’s initial guidance, the SBA will be looking at the borrower’s business activity and liquidity. Accordingly, each questionnaire has two parts –a business activity assessment and a liquidity assessment.
• Once the questionnaire is received from the lender, the borrower has 10 business days to complete and return to the lender.
• If the borrower fails to complete the questionnaire or provide the supporting documents, the SBA may deem the borrower ineligible for the loan or ineligible for forgiveness and seek repayment, or pursue other remedies.

While the borrower was required to make a good faith certification of the necessity for the loan at the time of the application, the SBA is clearly looking at what happened to the business subsequent to the loan application.

Like everything PPP, the rules continue to evolve while many borrowers are approaching the end of their covered period.