02 Nov 2020 SBA Publishes Loan Necessity Questionnaire for PPP Borrowers
TAX ALERT |
Authored by RSM US LLP
The Small Business Administration (SBA) has published a loan necessity questionnaire for for-profit and non-profit borrowers. The questionnaire has not been officially published on the SBA or U.S. Treasury websites, but it has been reported that borrowers (together with their affiliates) with PPP loans of $2 million or greater have started to receive the questionnaires.
The questionnaire requests information to confirm the economic necessity certification that borrowers made when applying for the PPP loan program. Example requests include the cash and cash equivalents the borrower had on hand as of the last day of the calendar quarter immediately before the date of the PPP application, whether the borrower has made any dividends or capital distributions (other than for pass-through estimated tax payments), and whether the PPP borrower has prepaid any outstanding debt during the covered loan forgiveness period.
In addition, the SBA inquires about highly compensated individuals, whether any of the borrower’s equity securities were listed on a national exchange, and if not listed on a national exchange, the book value of equity and whether 20% or more of the borrower was owned by a private equity firm, venture capital firm or hedge fund.
Some of the requested liquidity information, such as the equity ownership and cash on hand/other sources of liquidity could have been expected by PPP borrowers as access to liquidity was one of the only criteria the SBA had previously provided with respect to the economic need certification. The additional liquidity information, such as the compensation and distribution questions, may be a surprise to PPP borrowers as these items were part of other CARES Act lending programs, such as the Treasury direct loans and Main Street Lending Program, but have not been previously mentioned for PPP.
Also on the loan necessity questionnaire is a business activity assessment. In this section, the SBA requests information with respect to a borrower’s gross receipts, whether the entity has been required to shut down as a result of covid-19, whether business operations have been affected by covid-19 and whether the borrower has undertaken any capital improvements not due to covid-19.
Borrowers with PPP loans of $2 million or greater should immediately review the applicable draft questionnaire and start to gather any information required. The SBA provides borrowers 10 business days to return the requested information to the PPP lender so the more information borrowers have ready to go the better.
Overall, the additional questionnaire is not surprising as the SBA has previously indicated it would be reviewing loans of $2 million or greater prior to making a determination on loan forgiveness. However, the volume and specificity of requested information may strike some borrowers as onerous and not in line with what was understood to be the original conditions of PPP. As we’ve seen before though, PPP is an evolving program and guidance can change with little notice.
DO YOU HAVE QUESTIONS OR WANT TO TALK?
Fill out the form below and we’ll contact you to discuss your specific situation.
This article was written by Mathew Talcoff, Justin Stallard, Ryan Corcoran , Debbie Singer and originally appeared on 2020-11-02.
2020 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Haynie & Company is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.