Despite substantial comments received from many associations and other parties, the Small Business Administration (SBA) has approved use of the originally issued Loan Necessity Questionnaire (one for for-profit entities and one for non-profit entities) for PPP borrowers who received a loan of $2 million or more. Please see our original alert on the Questionnaire here, which raises significant concerns about the Questionnaire.
On December 10, 2020, the SBA issued guidance within the PPP FAQs related to the Questionnaire stating that as part of the review process of loans of $2 million or more, the Questionnaire will help the SBA assess those borrowers’ certification in their loan application related to “current economic uncertainty” making the loan request necessary to “support the ongoing operations of the Applicant.” Further, the FAQ states the SBA’s assessment of borrower’s need based certification will be based on the totality of the borrower’s circumstances through a multi-factor analysis. The multi-factor analysis will include the Questionnaire, which incorrectly focuses on financial results of the borrower instead of good faith current economic uncertainty at time of loan application, and the companies’ individual circumstances, including actions both before and after the borrower’s certification/loan application.
Upon receipt of a Questionnaire from a PPP Lender, borrowers are asked to complete and return the Questionnaire within ten (10) business days. Failure to complete the Questionnaire and provide the required supporting documents may result in the SBA’s determination that a borrower was ineligible for either the PPP loan, the PPP loan amount, or any forgiveness amount claimed, and the SBA may seek repayment of the loan or pursue other available remedies.
Further, the FAQ states that after a borrower submits a completed Questionnaire, the SBA may request additional information to complete its review. If requested, borrowers will have the opportunity to provide a narrative response to the SBA explaining the circumstances that provide the basis for good-faith loan necessity certification at the time of the loan application. While the FAQ states that review will be a multi-step approach/review, it is concerning that the SBA is not required to request additional information or that a borrower is not assured the opportunity to submit a narrative to explain the good-faith necessity based on the current economic uncertainty at the time of the loan application. In light of this and other concerns related to the Questionnaire, the Associated General Contractors of America filed suit against the SBA and the US Office of Management and Budget claiming the questionnaire contradicts the original guidance of the SBA, which was to certify that economic uncertainty at the time of the loan application justified the need for the loan.
During the audit process, we anticipate the Office of the Inspector General (OIG) to be involved as well as the Department of Justice (DOJ) for PPP loans/borrowers that rise to the level of possible fraud. The DOJ has become part of the crack-down on suspected fraud exploiting federal relief programs due to the high volume of reports of suspected fraudulent activity, many reports of which are coming directly from financial institutions.
A PPP borrower should make every effort to ensure a narrative response to the SBA explaining the circumstances that provide the basis for good-faith loan necessity certification at the time of the loan application is attached or included in their response to a Questionnaire. Borrowers do not want to wait and hope the SBA asks them to provide additional information after submitting the Questionnaire. Therefore, a PPP borrower should perform an internal assessment and document gathering process now and prepare a written assessment to support the necessity certification made, which they can include with the response to their Questionnaire.
Borrowers should consider requesting legal counsel or a third party to prepare a certification justification memorandum for their business. If such a memorandum or narrative is not provided with the response to the Questionnaire, borrowers should be ready to provide it upon the request for additional information/the narrative from the SBA. Finally, in the event a borrower learns of an investigation by the OIG or DOJ, borrowers should immediately engage knowledgeable counsel that regularly handles matters with the OIG or DOJ (such as white collar crime issues) and understands the nuances of the PPP loan program.