Special Alert: Special Alert: Necessity Questionnaire
For Over $2,000,000 PPP Borrowers
Marty McCarthy, CPA, CCIFP
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Focused on You. Dedicated to Your Success.
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December 1, 2020
The Small Business Administration (SBA) published a notice in the federal register on October 26, 2020 that it is seeking approval from the Office of Management and Budget (OMB) to release two new forms for Payroll Protection Program (PPP) loan forgiveness. Approximately 42,000 PPP loans for more than $2,000,000 were made to businesses.
Form 3509 for-profit borrowers or 3510 for non-profit borrowers would be required to be completed by PPP borrowers who received a loan of $2,000,000 or more. The appropriate form would be due to the lender servicing the PPP loan within 10 business days of receipt from the lender.
The purpose of these forms is to facilitate the collection of supplemental information that will be used by SBA loan reviewers. The information on these forms will help to evaluate the good-faith certification made on your PPP Borrower Application (SBA Form 2483 or Lender’s equivalent form) that economic uncertainty made the loan request necessary.
Failure to complete the form and provide the required supporting documents may result in SBA’s determination that you were ineligible for either the PPP loan, PPP loan amount, or any forgiveness amount claimed. If so, SBA may seek repayment of the loan or pursue other available remedies.
Within five business days after you provide a completed form, the lender servicing your loan is required to upload the form and documents to the SBA PPP Forgiveness Platform (forgiveness.sba.gov) and separately input your responses to each question into the web form available in the platform.
OMB’s approval of the Necessity Certification forms is still pending although the comment period ended on November 25, 2020. OMB has 30 days from that date to complete the review process.
There is some confusion about whether lenders can require borrowers to complete the questionnaire now and then send the responses to the SBA. Nonetheless, borrowers should begin to collect the necessary information and supporting documentation so they are ready to complete the questionnaire.
PPP Loan Necessity Questionnaire (For-Profit Borrowers)
The For-Profit Loan Necessity Questionnaire includes two sections – a Business Activity Assessment and a Liquidity Assessment.
The Business Activity Assessment for-profit borrowers consists of questions requesting detailed information and supporting documentation related to:
- Gross Revenue for Q2 of 2019 and 2020 (or Q1 of 2020 if borrower did not exist in 2019).
- Whether the borrower was ordered to shut down or significantly alter its operations by a state or local authority since the COVID-19 National Emergency Declaration issued by President Trump on March 13, 2020.
- Whether the borrower voluntarily ceased, reduced, or altered its operations due to COVID-19.
- Whether between March 13, 2020 and the end of the loan forgiveness covered period of the PPP loan, borrower began any new capital improvement projects, not due to COVID-19.
The Liquidity Assessment consists of questions requesting detailed information and supporting documentation related to:
- How much borrower owned in cash and cash equivalents (not defined) as of the last day of the calendar quarter immediately prior to the date of borrower’s PPP loan application.
- Whether borrower has paid any dividends or other capital distributions (other than pass-through estimated tax payments) to its owners between March 13, 2020 and the end of the loan forgiveness covered period of the PPP loan.
- Whether borrower prepaid any outstanding debt (paid before the contractually due) between March 13, 2020, and the end of the loan forgiveness covered period of the PPP loan.
- Whether any of borrower’s employees or owners (for owners – those who work at borrower) were compensated by borrower in an amount that exceeds $250,000 on an annualized basis during the loan forgiveness covered period of the PPP loan (gross salary, gross wages, gross tips, gross commissions, and allowances for dismissal or separation);
- Whether any of borrower’s equity securities were listed on a national securities exchange on the date of borrower’s PPP loan application.
- Whether any publicly traded company owned 20% or more of any class of borrower’s outstanding equity securities on the date of borrower’s PPP loan application.
- The book value (shareholder’s equity value) of borrower as of the last day of the calendar quarter immediately prior to the date of borrower’s PPP loan application.
- Whether borrower was a subsidiary (at least 50% of borrower’s common equity, or equivalent equity interest is owned by) of another company (parent company) on the date of borrower’s PPP loan application.
- Whether 20% or more of any class of borrower’s outstanding equity securities were owned by a private equity firm, venture capital firm or hedge fund (including a fund managed by such firm) on the date of borrower’s PPP loan application.
- Whether borrower was an affiliate or a subsidiary (at least 5o% of borrower’s common equity, or equivalent equity interest, directly or indirectly owned or controlled by) of a foreign, state-owned enterprise (at least 50% owned by a foreign state) or of a department, agency or instrumentality of a foreign state on the date of borrower’s PPP loan application.
- Whether borrower directly received funds from any CARES Act program other than the PPP, excluding tax benefits.
PPP Loan Necessity Questionnaire (Non-Profit Borrowers)
The Non-Profit Loan Necessity Questionnaire also includes an Activity Assessment and a Liquidity Assessment. Although both assessments are similar to those in the For-Profit Businesses, the questions are geared towards non-profit borrowers. It asks for information on the borrower’s gross receipts from gifts, grants, contributions, and similar amounts, as well as its expenses in Q2 of 2019 and 2020 (or Q1 of 2020 if borrower did not exist in 2019). The Liquidity Assessment asks for specific details on the non-profit entity.
Required Certifications
Both questionnaires require the borrower to certify that the information provided and all supporting documentation is true and correct in all material respects and that the borrower makes this certification after reasonable inquiry of people, systems, and other information available to them. The borrower also must certify that he or she understands that knowingly making a false statement to obtain a guaranteed loan or forgiveness of an SBA-guaranteed loan is punishable under the law by imprisonment of not more than 30 years and/or a fine of not more than $1,000,000.
Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. Rich Higgins, CPA, managing principal – New Jersey office can be contacted at Richard.Higgins@MCC-CPAs.com. I can be reached at Marty.McCarthy@MCC-CPAs.com. As always, we are happy to help.
Stay safe,
Marty McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).
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