PPP Loan Necessity Questionnaire (New FAQ)

On December 9, 2020, the U.S. Small Business Administration (SBA) and the U.S. Treasury Department (“Treasury”) updated a set of FAQs concerning the Paycheck Protection Program (“PPP”). The FAQs have been updated to include FAQ #53, which addresses a PPP loan borrower’s necessity certification.

As we already know, the SBA is reviewing all PPP loans of $2 million or more (and other loans as appropriate) for eligibility, fraud or abuse, and compliance with loan forgiveness requirements.[1] As part of its review process, the SBA is asking borrowers that together with their affiliates received PPP loans of $2 million or more to complete a Loan Necessity Questionnaire.[2] The questionnaires are being administered through PPP lenders. Upon request from their lender, borrowers should complete and return the questionnaire within 10 business days of receipt. And even though the FAQ uses the word “should” rather than “must,” it is unclear whether there will be any adverse consequences to failing to complete the questionnaire or returning it after the 10 business day period. Nonetheless, prudence strongly suggests compliance with the 10 business day deadline.

The SBA’s assessment of a borrower’s necessity certification will be based on the totality of the borrower’s circumstances. In a prior FAQ, the SBA has stated that it will assess whether a borrower had adequate basis for making the required good-faith necessity certification, based on its individual circumstances at the time of the PPP loan application, even if subsequent developments resulted in the PPP loan no longer being necessary.[3] However, the new FAQ casts doubt on this review process by indicating that the SBA may review a PPP borrower’s circumstance and actions after receiving the loan.[4]

After a borrower submits its Loan Necessity Questionnaire, the SBA may request additional information to complete its review. When additional information is requested, borrowers will have an opportunity to provide a narrative response explaining the basis for their good-faith necessity certification.

In sum, rather than clarifying existing guidance or providing new guidance, the new FAQ adds to the uncertainty of the SBA PPP loan review process.

[1] The SBA has yet to clarify what criteria it will use to determine what other PPP loans will be subject to the additional review process.

[2] See Form 3509 for for-profit borrowers and Form 3510 for non-profit borrowers.

[3] See FAQ #46.

[4] “In its review, SBA may take into account the borrower’s circumstances and actions both before and after the borrower’s certification to the extent that doing so will assist SBA in determining whether the borrower made the statutorily required certification in good faith at the time of its loan application.” FAQ #53.