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The Paycheck Protection Program (PPP) officially ended on May 31, 2021. From April 2020 through May 2021, the program provided approximately 12 million loans totaling nearly $800 million that helped businesses keep their workforces employed during the COVID-19 pandemic. 19 crisis.
This article covers matters related to the PPP Loan Needs Questionnaire (i.e., SBA Form 3509, Loan necessity questionnaire (for-profit borrowers) and SBA Form 3510,
Loan Necessity Questionnaire (non-profit borrowers)).
Draw up PPP loans first
When submitting a PPP application for a First Draw PPS Loan or a Second Draw PPS Loan, all borrowers were required to certify in good faith that “[c]the current economic uncertainty necessitates this loan application to support the applicant’s ongoing business.” (the “Declaration of Emergency”). With respect to First Draw PPP loans, SBA provided a safe haven that any borrower who, along with its affiliates, received a First Draw PPP Loan with an original principal amount of less than $2 million will be deemed to have provided in good faith the required certification as to the need for the First Draw PPP Loan. 3509, Loan necessity questionnaire (for-profit borrowers) and SBA Form 3510,
Loan Needs Questionnaire (non-profit borrowers) (the “LNQ”) to lenders to provide to PPP borrowers who, along with their affiliates, have received First Draw PPP loans of $2 million or more. The stated purpose of the LNQs was to assist SBA in assessing PPP loans for adequacy, fraud or abuse and meeting loan forgiveness requirements. The real effect, however, was the creation of a new layer of paperwork and bureaucracy that negatively impacted lenders and borrowers, severely impacting SBA’s ability to process loan forgiveness applications.
Second Draw PPP Loans
For Second Draw PPP Loans, all borrowers were required to certify in good faith that “[c]the current economic uncertainty necessitates this loan application to support the applicant’s ongoing business.” Because borrowers of Second Draw PPP loans were required to demonstrate that their gross income has decreased by 25%, all borrowers of Second Draw PPP loans were deemed has provided in good faith the required certification as to the necessity of the loan LNQs were not required for Second Draw PPS loans.
Withdrawal of the PPP loan Necessity Questionnaire
On June 21, 2021, SBA requested that the Office of Management and Budget (OMB) withdraw its approval of the LNQ forms (ie Form 3509 and Form 3510). SBA noted that while the LNQs “were a deterrent and prevented program abuse by applicants who failed to make good faith certification of the need for a loan,” the LNQs are burdensome for both lenders and borrowers and that eliminating them will reduce this burden and allow SBA to comply with its obligation to process forgiveness decisions with the legal 90-day forgiveness period.
On July 2, 2021, SBA officially notified PPP lenders that they no longer need to obtain an LNQ from borrowers seeking forgiveness for PPP loans amounting to $2 million or more. This development will primarily benefit PPP borrowers with loans of $2 million or more who have not yet applied for loan forgiveness. SBA is in the process of implementing a formal policy change to commemorate the elimination of the LNQ requirement and will publish a corresponding FAQ shortly.
PPP Loan Reviews and Backup Documentation
It should be noted that the repeal of the LNQ requirement does not change the SBA assessment procedures for PPP loans. Specifically, SBA may take into account “the borrower’s circumstances and actions” both before and after the borrower’s certification, to the extent that it assists SBA in determining whether the borrower has made the legally required certification in good faith at the time of its First Draw PPP loan application.” (See FAQ #53.) PPP loans are still subject to SBA assessment and borrowers should retain all relevant information and documentation to support the application and administration of their PPP loan(s).
Originally published on July 9, 2021.
The contents of this article are intended to provide general guidance on the subject. Specialist advice should be sought regarding your specific circumstances.