Throughout the various stages of the PPP stimulus package, the SBA has commented that borrowers of PPP funds of $2 million or more would be subject to additional scrutiny regarding their loan and forgiveness eligibility. In early November 2020, SBA circulated a draft questionnaire aimed at those borrowers and invited feedback and comments from the public. The questionnaire is intended to be issued to borrowers by their respective lender (with a 10-business-daystimeframe to return)and asks questions about business activity, liquidity and capital, and owners and employees with a view to gaining a deeper understanding of the borrowers’ need for additional funding through the pandemic.

The draft questionnaires can be found here for nonprofit borrowers and here for for-profit borrowers.

How Does It Work

Because the questionnaire is in draft form, it remains unclear what the timing to begin issuing the questionnaire to borrowers might be and what the intentions of SBA are in reviewing the responses. The questions themselves are specific and narrow with limited ability for borrowers to expand on specific circumstances. Further, the questions are largely focused on developments during the PPP covered period rather than the uncertainty that existed at the onset of the pandemic that may have led to funding needs. Hindsight is 20/20, and looking back at events during the covered period appears to contradict the “sufficient uncertainty” requirement that existed at the time of the loan application.

In looking at the nature of the questions, and considering that loan eligibility and forgiveness rules are enshrined into The CARES Act and PPP Flexibility Act, it is not clear how the SBA will interpret responses. GHJ’s current expectation is that the various fields will be used to flag for loans that may be considered for additional diligence procedures by the SBA. Further, how the SBA would implement any adjustments to borrowers’ loans or forgiveness, and the authority to do so, also remains unclear.

Implications

In recent weeks, many lenders have started opening online portals for borrowers to upload forgiveness applications. The questionnaire places an additional burden on the lender which may slow down forgiveness processing, for borrowers of all loan sizes, not just $2 million or more. Therefore, the motivation to file applications sooner rather than later (where full forgiveness is expected and there are no contrary reasons not to file now) is likely increased. However, borrowers of $2 million or more who want to avoid the questionnaire by filing forgiveness as soon as possible may find their applications are in a holding pattern until the questionnaire is implemented.

Borrowers of loans $2 million or greater should review the questionnaire to familiarize themselves with the nature of the questions, and use the open text areas to add specific commentary, circumstances and other details that support their need for PPP funding and entitlement to forgiveness.

Borrowers should use the form to assist or inform future decisions that may change the answer on the questionnaire – for example borrowers that are contemplating an owner distribution in excess of tax liabilities may determine that doing so would cause an unwanted change in questionnaire response. As such, the questionnaire’s contents should be taken into consideration now to inform future decision making, to avoid presenting a red flag which could ultimately cause a reduction in loan eligibility and/or forgiveness.

If you have any questions on the above, GHJ’s COVID-19 Response Team has as an experienced team of consultants specializing in COVID-related laws and programs and can provide the tools your business needs to help it recover from this business disruption. We are here to assist organizations to succeed in these very challenging times.

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POST WRITTEN BY

David Sutton

David Sutton is a leader in GHJ’s Advisory Practice with more than 15 years of experience across technology, restructuring and mergers and acquisitions. Originally from the U.K., David’s advisory experience includes work across the retail, technology, distribution, manufacturing and real estate…Learn More