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Widespread Concerns about Paycheck Protection Program (PPP) Loan Necessity Questionnaires

Eighty-two organizations, including the AICPA, have recently expressed their concern about PPP loan necessity questionnaires. The SBA requires borrowers to complete the new forms 3509 or 3510 and also provide extensive supporting documentation to prove their need of the PPP loan. The questionnaire is only required for PPP loans of $2 million or more.

The Letters and the Latest PPP Loan Updates

The SBA Administrator, Treasury Secretary, and congressional leaders all received letters recommending temporary suspension of use of the questionnaire. Meanwhile, they request that the agencies work collaboratively to address the issue. They hope that, by working together, they can find a better way to request the information from the borrowers.

A coalition representing millions of small businesses and workers in the United States wrote the letters to suggest the continued use of the existing SBA Forms for PPP Forgiveness Applications. This is because they ensure the agencies can fully examine all relevant facts before loan forgiveness approval. SBA Forms 3508S, 3508EZ, and 3508 allow in-depth checks that companies use the loan funds how Congress intended.

Furthermore, the coalition had some recommendations that could apply if there were more information required about the PPP loan necessity and suitability. It suggests the borrower has a requirement to supply appropriate documentation and a full narrative statement. This would show the critical nature of the loan to the borrower’s ongoing operation.

Why Were the Letters Sent?

The coalition believes strongly that most small businesses required a PPP loan to retain employees and continue operating. It also feels many continue to need extra financial support. The new requirements and changes are likely to affect future decisions regarding applying for additional relief.

The coalition sent the letters to identify operational and policy concerns regarding the new SBA forms. These concerns include:

  • An incorrect time frame focus – The questionnaires focus on the wrong time frame in which there must be an assessment of the loan. The questionnaires are seeking comparisons between the 2019 and 2020 second quarters’ gross revenue. They are also seeking narratives and metrics to describe how the borrower fared in the pandemic. Yet, borrowers had to certify when making the request that they needed a loan. Therefore, any circumstances that occurred after making the certification should not have any bearing on the borrower’s good faith statement.
  • The requirement for revenue and liquidity data – Supplying this information could expose small business owners’ finances. The CARES Act did not include a means-based test, liquidity test, or test of revenue deduction. There were no other metrics to assess the borrower’s financial standing so the government could assign PPP loans by priority. Therefore, any questions regarding liquidity and revenue suggest a bias exists against borrowers that have remained profitable through the pandemic. Increased or steady revenue with continuing employment and healthy liquidity should be a sign of the loan’s success. This is something that the government should take into account when considering loan forgiveness.
  • Concerns about misinformed analysis – There have been some concerns raised that the answers given may lead the agencies to provide a poorly informed analysis. These questions included requests for details about which jurisdiction of the government mandated closures. They also included requests for statements about whether changes or closures in operations were voluntary or mandatory.
  • Impractical deadlines for compliance – The questionnaires also apply compliance deadlines on lenders and borrowers that are impractical and/or impossible to meet.

More than 5.2 million loans worth a total of $525 billion received approval in the five months of the program’s operation. Around 30,000 of those loans were worth at least $2 million. Therefore, these letters regarding the PPP loan necessity questionnaires are highly relevant to many small business owners.

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