Articles & Alerts

On October 26, 2020, the Small Business Administration (SBA) announced in the Federal Register two new forms: Form 3509, PPP Loan Necessity Questionnaire (For-Profit Borrowers) [view PDF], and Form 3510, Loan Necessity Questionnaire (Non-Profit Borrowers) [view PDF]. 

Although these forms have not been widely distributed, the SBA is accepting public comment on them through November 25, 2020. ^[1] 

The purpose of the new forms is to facilitate the collection of supplemental information that will be used by SBA loan reviewers to evaluate the good-faith certification made on a Borrower’s original PPP loan application that economic uncertainty made the loan request necessary.  The following summary focuses on Form 3509 and presumes the forms will not significantly change from their current status. Whether these forms are to be  issued by the SBA, ultimately, is a topic of debate and has raised considerable questions and push-back from the banks. ^[2] We currently expect that the trigger for this form will be the submission of a forgiveness recommendation by the Lender to the SBA.  At that point, or shortly thereafter, the SBA will instruct the Lender to request Form 3509 from the Borrower.

Every For-Profit Borrower that received a PPP loan of $2 million or greater (together with its Affiliates) would be required to complete the nine-page Form 3509.  The Lender will be required to deliver the form to the Borrower who is required to complete it within ten business days.  The submission along with the required documentation will be made directly by the Borrower to its Lender.  The Lender is not required to review the accuracy of the form and instead is required to upload the form and back up documentation to the SBA within five business days of receipt from the Borrower.

Form 3509 includes separate sections for a Business Activity Assessment and a Liquidity Assessment. 

The Business Activity Assessment is focused on the impact that the pandemic had on the Borrower’s business, including:

• Borrower’s Q2 2020 revenues as compared to Q2 2019 revenues
• Since March 13, 2020, whether the Borrower was ordered to be shut down by a state or local authority due to COVID-19
• Since March 13, 2020, whether the Borrower was ordered to significantly alter its operations by a state or local authority due to COVID-19
• Since March 13, 2020, did the Borrower voluntarily cease or reduce its operations due to COVID-19?
• Since March 13, 2020, did the Borrower voluntarily alter its operations due to COVID-19?
• Between March 13, 2020 and the end of its covered period, did the Borrower begin a capital improvements project not due to COVID-19?

 The Liquidity Assessment is focused on the cash and capital position of the Borrower just prior to the original loan application, as well as compensation levels during the Covered Period. These questions include:

• As of the last day of the calendar quarter before the PPP loan application, what was the Borrower’s amount of cash?
• Between March 13, 2020 and the end of the Covered Period, did the Borrower pay any dividends or other capital distributions?
• Between March 13, 2020 and the end of the Covered Period, did the Borrower prepay any debt?
• During the Covered Period, did the Borrower compensate any employees or owners an amount that exceeds $250,000 on an annualized basis?
• On the date of the PPP loan application, were any of the Borrower’s equity securities listed on a national securities exchange?
• On the date of PPP loan application, did any publicly-traded company own 20 percent or more of any class of Borrower’s outstanding equity securities?
• On the date of PPP loan application, was the Borrower a subsidiary of another company?
• On the date of PPP loan application, was 20 percent or more of any class of the Borrower’s outstanding equity securities owned by a private equity firm, venture capital firm, or hedge fund?
• On the date of PPP loan application, was the Borrower an affiliate or a subsidiary of a foreign, state-owned enterprise, or of a department, agency, or instrumentality of a foreign state?
• Did the Borrower directly receive any funds from any CARES Act program other than PPP, excluding tax benefits?

Both assessment categories have sections for the Borrower to provide any additional comments of up to 1,000 characters. Depending on the responses to the questions in the aforementioned assessments, this section will allow Borrowers to explain their economic circumstances and concerns at the time they applied for the loan that may not be sufficiently explained by the responses to the questions in the forms on their own.

While we cannot predict how the SBA will use the responses in Forms 3509 and 3510, these forms appear to be assessing the Borrower’s good faith certification in Form 2483, Borrower Application Form, that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  This is further discussed in SBA’s FAQ #31 that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations” of the Borrower and the Borrower should take “into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to their business.” ^[3]

The data requested in these forms relates not only to the Borrower’s circumstances at the time of the loan, but also to the Borrower’s financial performance during the Covered Period. This appears to be inconsistent with the certification in Form 2483 and FAQ #31, which addresses the Borrower’s good faith assessment as of the date of the loan application, without mentioning the requirement that the Borrower analyze its financial results after receipt of the loan proceeds.

We will keep you posted as this further develops.

The Anchin COVID-19 Resource Team continues to monitor ongoing updates to the PPP Program. To better understand how the changes impact your unique situation, please contact your Anchin Relationship Partner or our Anchin COVID-19 Resource Team at [email protected].

Disclaimer: Please note this is based on the information that is currently available and is subject to change

 _{1 https://www.govinfo.gov/content/pkg/FR-2020-10-26/pdf/2020-23594.pdf}   

 _{2 https://www.politico.com/news/2020/10/30/sba-big-businesses-ppp-loans-433736}

 _{3 https://www.sba.gov/document/support-faq-lenders-borrowers}