Paycheck Protection Program (“PPP”) loans were created to forestall the economic catastrophe of mass layoffs due to the impact of COVID-19 on the economy. Borrowers simply had to make a good faith statement that they needed the funds because “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
In October 2020, the Small Business Administration (SBA) released draft Loan Necessity Questionnaires, which were finalized late in the year. Every borrower with a loan in excess of $2 million would be required to answer questions aimed at determining — based on events and financial performance subsequent to the loan being granted — whether the loan was really necessary. Needless to say, borrowers and their advisors were perplexed and concerned. Considerable time and financial resources (mostly on legal fees) were devoted to completing the questionnaires.
As of July 29, in an update to the PPP Loans Frequently Asked Questions (“FAQs”), the SBA has formally (sort of) announced that it is discontinuing the use of the forms. That being said, they haven’t necessarily changed the review process for loan forgiveness. And, it is still important to retain all support and documentation, particularly support for the original certification of economic necessity.
Streamlined Forgiveness Program
At the same time, the SBA also issued a new Interim Final Rule (“IFR”) providing a more streamlined loan forgiveness program for PPP loans of $150,000 or less. The IFR also introduces a COVID Revenue Reduction Score to simplify forgiveness of Second Draw PPP loans (“PPP2”). The IFR also extends the deferment period for PPP loans in situations where the borrower is appealing a final SBA loan review decision.
The direct borrower forgiveness process is a technology solution for PPP lenders who opt in to the program. The SBA has created a portal where borrowers of eligible loans may apply directly on the SBA’s PPP platform using an electronic equivalent of Form 3508S. The lender can then review the application and issue a forgiveness decision to the SBA inside the platform.
The COVID Revenue Reduction Score, also for loans of $150,000 or less, has been created by a third-party SBA contractor and will be maintained inside the SBA platform. It is visible to lenders as an alternative to requiring documentation of revenue reduction. It will be visible to borrowers who apply for forgiveness directly through the platform.
The SBA hopes that these initiatives will take a significant burden from the banks and other lenders since loans of $150,000 or less represent 93% of all outstanding PPP loans. Of course, feel free to contact your Friedman LLP advisor for advice in navigating these new initiatives or if you have any questions regarding the Loan Necessity Questionnaires.