Over the course of the Paycheck Protection Program (“PPP”), the Small Business Administration (“SBA”) has released guidance in the form of FAQs. In April and May, guidance was released on Borrowers’ good faith certification of their eligibility for PPP loans and explained how the SBA would review such good-faith certification.
Last week the SBA released a notice seeking approval from the Office of Management and Budget for new forms to collect information related to the Paycheck Protection Program (“PPP”). The forms would be sent by lenders at the direction of the SBA to certain borrowers who, together with its affiliates, received PPP loans with an original principal amount of $2 million or greater. Borrowers will have 10 days to provide their responses.
The SBA states that the receipt of this form does not mean that the SBA is challenging that certification. However, failure to complete the form and provide the required supporting documentation MAY result in the SBA determining that the borrower was either ineligible for the loan, the loan amount, or the forgiveness claimed. Based on the short response deadline, we strongly urge all borrowers with loans of $2 million or more to start gathering the documentation requested and speak to their lawyers and financial advisors. That way, they will be best prepared to respond in a timely manner if and when they receive the request. Of course, we are available to assist as well.
There are two forms – Form 3509 for for-profit borrowers and Form 3510 for nonprofit borrowers. Currently they are draft forms not approved for release. They don’t yet appear on the SBA website and the SBA has not yet released their criteria for asking borrowers to complete a form. The forms also introduce a new term – loan forgiveness covered period – which is undefined.
Among the questions are:
- What was the borrower’s gross revenue in the second quarter of 2020 compared to the second quarter of 2019?
- Since the Covid-19 emergency began, has the borrower been ordered to shut down and if so, by whom?
- Since March 13, 2020 has the borrower been ordered to significantly alter its operations by a state or local authority, and if so, what were the cash outlays if any?
- Between March 13, 2020 and the end of the loan forgiveness covered period, did the borrower begin any new capital improvement projects not due to Covid-19?
- What were the borrowers’ cash and cash equivalent amounts as of the last day of the quarter immediately before the date of the loan application?
- Has the borrower paid any dividends between March 13, 2020 and the end of the loan forgiveness covered period (other than to pay taxes)?
- Has the borrower prepaid any debt between March 13, 2020 and the end of the loan forgiveness covered period?
- During the loan forgiveness covered period, were any of borrower’s employees compensated more than $250,000? Were any of these employee owners?
- Did the borrower receive any funds from any CARES Act program, i.e. EIDL funds?
OBSERVATION: The information requested is not limited to a borrower’s circumstances at the time it applied for its PPP loan. Several of SBA’s questions request information concerning the borrower’s experience after receiving its loan.
OBSERVATION: Next to every question there is a yes or no checkbox, asking whether the answers or information provided in response to the question are customarily kept confidential. There may be an assumption that if you don’t check the box yes, such information may be available to the public under a Freedom of Information Request.
Much has been already written about this new SBA initiative. We hope that the SBA will provide more details about their intentions and how the process will work. As more information is released we will, of course, keep you posted. In the meantime, please contact your Friedman LLP advisor with any questions.