As of approximately October 26, 2020, the Small Business Administrations (the “SBA”) requested certain Paycheck Protection Program (“PPP”) lenders to provide certain questionnaires to PPP borrowers with loans over $ 2 million. The questionnaires are not on the official SBA websites. There are two questionnaire forms: Form 3509 for for-profit borrowers and Form 3510 for non-profit borrowers. We do not know if these forms are finalized and we are awaiting further information.

Carry: Borrowers with loans over $ 2 million should gather requested information now in anticipation of lender demand. Given the uncertainty as to how this process will be administered and how the information will be used, and the fact that clarification is needed and deadlines are tight, borrowers should seek legal advice before submitting a claim. asking for forgiveness or responding to a request. These borrowers should also consider delaying their rebate request until some of these open questions are clarified..

Purpose of the forms: In the initial PPP loan application, borrowers had to make several declarations and certifications. One of the certifications dealt with the economic conditions of the borrower. Each borrower had to certify in good faith that the current economic uncertainty makes the borrower’s loan application necessary to support their ongoing operations..

The purpose of these new forms according to the SBA “is to facilitate the collection of additional information that will be used by SBA loan examiners to assess the bona fide certification which. [a borrower] made on [its] PPP borrower application (Form SBA 2483 or equivalent form from the lender) that economic uncertainty has made the loan request necessary.

Borrowers impacted: Each borrower who, along with its affiliates, has received PPP loans with an initial principal amount of $ 2 million or more is required to complete the applicable form and submit it, along with the required supporting documents, to the managing lender the borrower’s PPP loan.

Scope of information: The SBA previously announced that it would reconsider the need for PPP loans, especially for borrowers with loans over $ 2 million, with “need” being understood as:

“… All borrowers should assess their economic need for a PPP loan according to the standard established by the CARES Act and PPP regulations. at the time of the loan request … [A]All borrowers should carefully review the required certification which ‘[c]the current economic uncertainty makes this loan application needed to support the the current operations of the applicant. ‘ Borrowers should make this certification in good faith, taking into account their current business activity and their ability to access other sources of sufficient liquidity to support their current operations in a manner that does not significantly harm the company. [Emphasis added]. FAQ # 31.

Although the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and FAQ # 31 Instructs borrowers to assess their loan need at the time of application, the new SBA forms gather information to assess need both at the time of application and during the use of funds. This is a surprise to most borrowers who were prepared to provide ‘need’ information at ‘time of application’, but did not anticipate a close examination of necessity during the period of use of funds. . That said, this time around, we don’t know if the “while funds are used” information will be used by the SBA to determine “need” or if it is simply to collect information.

Required information: The information requested is numerous and somewhat vague. There are two categories:

  • Business activity assessment – questions and documents:
    • Documentation of gross income – the gross turnover of the borrower in the first quarters of 2019 and 2020 and supporting documents justifying the declared income.
    • Explanation of the effect of COVID-19 – as of March 13, 2020, if and how COVID-19 has temporarily closed, affected, modified, ceased or reduced operations, or resulted in additional capital improvement projects or borrower cash spending. Although documents are not required, borrowers are required to answer many questions and provide their six-digit NAICS code.
  • Liquidity assessment – questions and documentation of:
    • Cash – the amount of cash and cash equivalents on the last day of the calendar month immediately preceding the date of the borrower’s PPP loan application.
    • Dividends and Distributions – the amount of dividends or other distributions of capital (other than estimated tax payments passed through) paid to owners between March 13, 2020 and the end of the period covered.
  • Outstanding Debt – all prepayments of debt made between March 13, 2020 and the end of the period covered.
  • Owners and Highly Paid Employees – amounts paid to owners and / or employees in excess of $ 250,000 on an annualized basis during the Covered Period.
  • Borrower’s Value – if publicly traded, value based on market capitalization on the date of PPP loan application; if it is private, the book value on the last day of the quarter preceding its ownership.
  • Ownership – whether their equity was owned by a publicly traded company, private equity or venture capital firm, or hedge fund, whether it is a subsidiary of another entity and they are owned by a foreign or state enterprise.
  • Other CARES Law Benefits – whether or not they have received other CARES Law benefits, excluding tax benefits.

Information not specifically requested: Although FAQ # 31 referred to the “borrower’s ability to access other sources of liquidity”, at this time, the forms do not ask questions on this item. We recommend that borrowers be prepared to answer this question and provide documentation if requested.

Treat: Completed form and data is due to PPP lender who handles PPP loan within 10 working days of receipt from lender. At this point, we do not know if borrowers will receive the request at the time of filing a forgiveness request or at some other time. Once the form is submitted, the SBA may request additional information, if necessary, to complete the exam. The determination of the SBA will be based on the overall situation of the borrower. Failure to complete the form and provide the required supporting documents may result in the SBA ruling that the borrower was not eligible for the PPP loan, PPP loan amount, or any rebate amount claimed, and the SBA may seek repayment of the loan or pursue other available remedies.

Questions about PPP: Due to the many variables that affect each borrower differently, a borrower should consider discussing the loan forgiveness process with legal counsel before submitting the application. Schwabe is committed to providing its customers with up-to-date resources to understand the CARES Act and navigate the COVID-19 pandemic.

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