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The Small Business Administration (SBA) released loan necessity questionnaires—one to be completed by for-profit entities (SBA Form 3509 – Loan Necessity Questionnaire – For Profit) and one for nonprofit entities (SBA Form 3510 – Loan Necessity Questionnaire – Not for Profit)— for any Paycheck Protection Program (PPP) loans of more than $2 million. They have indicated that the forms should be distributed and collected by the banks that have issued the loan, in order for the SBA to gain a deeper understanding of the largest loans issued by the program.

These newly released questionnaires are extensive in terms of the scope of additional information requested, including cash on hand, dividends paid, debt payoffs, common ownership etc. It appears that upon receipt of this additional data, the SBA will likely prioritize borrowers they may choose to further scrutinize as they evaluate the “good-faith” certification put forth by organizations on the initial application.

SBA Form 3509

SBA Form 3509 to be completed by for-profit organizations categorizes its questions into two areas, business activity assessment and liquidity assessment. The line of questioning is as follows.

Business Activity Assessment

Gross Revenue. The SBA asks for gross revenue in the first two quarters of both 2019 and 2020, and requests supporting documentation.

COVID-19 Impact. The SBA is seeking details on how the pandemic impacted the daily operations of the business. There are several questions on whether the business was forced to temporarily shut down or if and how operations altered. For this section, borrowers do not have provide supporting documentation, but the form does ask for the borrowers’ six-digit NAICS code.

Liquidity Assessment

Cash on Hand Documentation. SBA is requiring borrowers to provide documentation on the amount of cash and cash equivalents when the PPP loan application was initially submitted.

Dividends and Distributions Documentation. SBA is requesting documentation regarding the amount of dividends or other distributions paid to owners between March 13, 2020 and the end of the covered period.

Outstanding Debt Documentation. Borrowers must provide documentation on all debt prepayments made between March 13, 2020, and the end of the covered period.

Highly Paid Owners and Employees Documentation. Borrowers must provide documentation regarding the amounts paid to owners and/or employees in excess of $250,000 on an annualized basis during the covered period.

Value of Borrower. Privately held businesses must provide book value on the last day of the quarter preceding its loan application. Publicly traded businesses must its value (based on market capitalization) on the date of the PPP loan application.

Ownership Information. SBA is requesting information on whether the organization’s equity was owned by a publicly traded company, private equity or venture capital firm or hedge fund, whether it is an affiliate of another entity, and whether they are owned by a foreign or state-owned enterprise.

CARES Act Benefits. Borrowers must disclose whether they received any other CARES Act benefits, excluding tax benefits.

SBA Form 3510

SBA Form 3510 must be completed by nonprofit PPP loan borrowers who received loans in excess of $2 million. The line of questioning is similar in nature as the Form 3509 with some modifications.

Nonprofit Activity Assessment

Gross Receipts. Rather than gross revenue, the SBA is requesting details on gross receipts for the first two quarters of 2019 and 2020, along with supporting documentation. In addition to total gross receipts, the borrower must provide details on gross receipts specific from gifts, grants, contributions, and similar amounts, also for the first two quarters of 2019 and 2020.

Expenses. In connection with the gross receipts, the questionnaire requests borrower’s expenses in the second quarter of 2019 and 2020.

COVID-19 Impact. Form 3510 is similar in terms of questions to Form 3509 in regard to details on how the pandemic impacted the daily operations of the organization, as well as requesting the borrowers’ six-digit NAICS code.

Liquidity Assessment

Cash on Hand Documentation. SBA is requiring borrowers to provide documentation on the amount of cash, savings, and temporary cash investments in hand when the PPP loan application was initially submitted.

Outstanding Debt Documentation. Borrowers must provide documentation on all debt prepayments made between March 13, 2020, and the end of the covered period.

Highly Paid Owners and Employees Documentation. Borrowers must provide documentation regarding the amounts paid to owners and/or employees in excess of $250,000 on an annualized basis during the covered period.

Endowment Assets. Borrowers must indicate if they hold assets in any endowment funds and if so, they must disclose the type of fund and the value of the assets as of the last day of the calendar year quarter immediately before the date of the PPP loan application.

Non-Cash Investments. The SBA asks the value of the organization’s non-cash investments, referencing equity, bond, and real estate holdings as examples.

Sector/Service Specific Questions

Education Institutions. The Form specifically asks if the borrower is a school, college, or university and if so, there is a series of questions related to median tuition, financial assistance offered, and the negative impact on revenue due to decrease in tuition.

Health Care Services. If the borrower provides health care services there is a series of questions that must be completed, including amount of revenue for patient care services in second quarter of 2019 and 2020, and whether the borrower offered discounts on its services as a result of COVID-19.

CARES Act Benefits. Borrowers must disclose whether they received any other CARES Act benefits, excluding tax benefits.

Timing

For those organizations receiving PPP loans of more than $2 million, the organization has 10 business days from the time your lender provides the questionnaire to return the completed form and requested supplemental documentation to the lender. Lenders servicing PPP loans then have five days to submit the completed questionnaires from borrowers to the SBA through an online portal. At this time, it remains unclear the SBA’s process for reviewing this information and making final determinations on PPP loan forgiveness.

Contact Us

If you have questions as you continue to navigate the PPP loan, this latest development or any other COVID-19 related economic stimulus, Selden Fox is here to help. For additional information please call us at 630.954.1400 or click here to contact us.

Paul Rozek

Paul Rozek provides tax research, consulting and compliance services to closely held businesses, tax-exempt organizations, individuals and fiduciaries. His clients include family offices, private foundations, trade associations, charitable organizations, schools, credit unions and other nonprofit entities.