Paycheck Protection Program Loan Necessity Questionnaire
By Dawn Minotas, Director, Outsourced Managed Services
Throughout the short life of the Paycheck Protection Program Paycheck Protection Program (PPP), there has been significant scrutiny of borrowers who receive PPP loans greater than $2 million. These borrowers have been called upon numerous times to justify their economic need for this government aid, created by the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The Small Business Administration (SBA) previously indicated that it would audit all loans greater than $2 million as part of the forgiveness process. The SBA is now creating a questionnaire, known as the Loan Necessity Questionnaire, that banks will be required to distribute to PPP borrowers with loans greater than $2 million, to justify the need for the loans.
The questionnaire has not yet been officially released and, therefore, is not available on the SBA website at this time. That means the questionnaire may change, stay the same, be eliminated, or replaced.
Marcum wants you to know the questionnaire is looming, the SBA will be looking at these items, and you should be prepared.
Documenting Economic Uncertainty
Language in the draft Loan Necessity Questionnaire indicates its purpose is to collect supplemental information which will be used by the SBA to evaluate the good-faith certification of economic necessity borrowers made on their PPP loan applications. The questionnaire and supporting documentation must be completed within 10 days of receipt from the lender. Failure to complete the form may result in the SBA determining the borrower was ineligible for the loan and/or any forgiveness amount claimed.
It appears that the questionnaire is fact-based and refers to business activity compared to the taxpayer’s prior year, as well as liquidity before applying for the loan as well as during the covered period. While it does provide some space for commentary supporting the “yes” or “no” answers to the questions, it does not seem to provide a true picture of the economic uncertainty and thought process businesses considered at the time of loan application, nor does it seem to consider contingencies, varying scenarios, or overall risk facing a business entity during the pandemic.
As has been the case throughout the life of this program, it may be prudent to take a wait-and-see attitude when it comes to the completion of this questionnaire, although ultimately the borrower will need to make this call.
Upon release of the final questionnaire, we suggest that borrowers review the questions asked, discuss them with your banker, and gather documentation and support of the thought process used when applying for the loan, based on the facts and circumstances that existed at that time.
We anticipate more guidance about the Loan Necessity Questionnaire will be forthcoming. Your Marcum advisor is always available to help resolve questions and provide additional assistance.
Coronavirus Resource Center
Have more questions about the impact of the coronavirus on your business? Visit Marcum’s Coronavirus Resource Center for up-to-date information.