Home Madrid Economy SBA offers questionnaire on the need for a PPP loan | Faegre Drinker Biddle & Reath LLP

SBA offers questionnaire on the need for a PPP loan | Faegre Drinker Biddle & Reath LLP

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On October 26, 2020, the United States Small Business Administration (SBA) issued a opinion request approval from the Office of Management and Budget (OMB) to collect and use certain borrower information to assess the “need” for Paycheck Protection Program (PPP) loans further of $ 2 million. The SBA offers a “Loan Necessity Questionnaire” in slightly different versions for for-profit and non-profit borrowers. The stated purpose of the new questionnaires is to “facilitate the collection of additional information that will be used by SBA loan examiners to assess the good faith certification” that PPP borrowers have made in their loan applications that the economic uncertainty made the loan request necessary. The SBA has not officially released the forms; however, versions of the questionnaires have circulated online over the past few days. It is not clear whether the questionnaires are in their final form or will undergo further changes.

Although the details of the timing of the use of the questionnaires by the SBA are still uncertain, affected PPP loan recipients can start preparing their responses now. Questionnaires indicate that every for-profit and non-profit borrower who has received PPP loans with an initial principal amount of $ 2 million or more is required to complete the form and submit it, along with the required supporting documents. , to its lender. According to Federal Register Notice, the SBA expects about 42,000 respondents to the For-Profit Borrower Questionnaire and about 10,000 respondents to the Nonprofit Borrower Questionnaire.

The questionnaires consist of two sections: an assessment of business activity and an assessment of liquidity. The assessment of the business activity of for-profit borrowers requires detailed information and supporting documents regarding:

  • Gross revenue in Q2 2019 and Q2 2020
  • If the borrower has been ordered to close or significantly modify its operations by a state or local authority since the COVID-19 national emergency declaration of March 13, 2020
  • If the borrower has voluntarily ceased, reduced or modified their operations since the COVID-19 national emergency declaration on March 13, 2020

The liquidity assessment of for-profit borrowers requires detailed information and supporting documentation regarding:

  • How much the borrower had in cash and cash equivalents immediately before the PPP loan application date
  • If the borrower has paid dividends or other distributions of capital to its owners between March 13, 2020 and the end of the period covered by the cancellation of the PPP loan
  • If the borrower has prepaid any outstanding debt between March 13, 2020 and the end of the period covered by the forgiveness of the PPP loan loan
  • If any of the borrower’s employees or owners who work in the business have been remunerated by the borrower for an amount greater than $ 250,000 on an annualized basis during the period covered by the loan forgiveness of the PPP loan
  • If any of the borrower’s equity securities were listed on a national stock exchange on the date of the borrower’s PPP loan application
  • The borrower’s market capitalization or the borrower’s book value
  • If the borrower was a subsidiary of another company on the date of the borrower’s PPP loan application
  • If 20% or more of the borrower’s outstanding equity securities were held by a private equity firm, venture capital firm or hedge fund on the date of the borrower’s PPP loan application
  • Whether the borrower was a subsidiary or subsidiary of a foreign public enterprise or a department, agency or instrument of a foreign state on the date of the borrower’s PPP loan application
  • If the borrower received funds directly from a CARES Act program other than the PPP

The Loan Necessity Questionnaire for Nonprofit Borrowers includes a similar set of business activity and liquidity assessment questions suitable for eligible types of nonprofit borrowers who have received PPP loans. Both questionnaires require the borrower to certify, “after reasonable investigation of the people, systems and other information available”, that the information and documentation provided is true and correct in all material respects.

The publication of these quizzes, which “will be used to inform the SBA exam [borrowers’] good faith certification that economic uncertainty has made [the] loan request necessary “to support ongoing operations, is not unexpected given the SBA guidelines previously set out in the Frequently Asked Questions About PPPs (FAQ). For example, in response to FAQ # 31, the SBA advised potential borrowers that they should carefully consider the required economic uncertainty certification and “should do this certification in good faith, taking into account their current business activity. and their ability to access other sources of liquidity. sufficient to support their ongoing operations in a way that is not significantly detrimental to the business. In response to FAQ # 39, the SBA alerted borrowers that it would review all loans over $ 2 million after the lender submits the borrower’s loan forgiveness request.

Assuming the form is finalized and approved by OMB, borrowers should carefully complete this form and any supporting documentation, especially given the subjective nature of any review process. Receipt of the form by a borrower does not mean that the SBA is contesting that borrower’s certification. The SBA did not provide any details as to its methodology for reviewing the forms, indicating only that its determination will be based on all of the circumstances. In response to FAQ No. 46, the SBA noted that loans over $ 2 million may have an adequate basis for establishing the required good faith certification, but reminded borrowers that the established protocol would still subject such loans to a review by the SBA to verify their compliance with program requirements. If the SBA determines that a borrower did not have an adequate basis to support certification of the necessity of the loan application, the SBA will request repayment of the outstanding balance of the PPP loan and notify the lender that the borrower does not. is not eligible for loan cancellation. The FAQ states that if the repayment is made, the SBA will not pursue administrative execution or referrals to other agencies based on its loan certification determination. Borrowers have the right to appeal certain loan review decisions.

What this means for borrowers

Since borrowers may only have ten days to submit the questionnaire after receiving it from the lender, borrowers who have received a PPP loan of $ 2 million or more should start preparing their responses and collecting the coins. supporting documents now. It appears that the trigger for this form is the loan forgiveness request. Borrowers who have concerns about questionnaire-related issues should consult legal counsel promptly and certainly before submitting any completed questionnaire.

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