SBA Drops PPP Loan Necessity Questionnaires

August 2, 2021

Kaylyn Varnum, CPA
Mike Batts, CPA

The SBA has discontinued the use of and reliance on its controversial “Loan Necessity Questionnaires” in reviewing forgiveness applications for Paycheck Protection Program (PPP) loans of $2 million or more.

As a part of the PPP loan forgiveness application process, many nonprofit borrowers whose PPP loans equaled or exceeded $2 million have been required to complete a Form 3510, Loan Necessity Questionnaire for Nonprofit Borrowers. The U.S. Small Business Administration (SBA) released the Form 3510 (together with the Form 3509, the counterpart questionnaire for businesses) in October of 2020. In so doing, the SBA stated that information in the forms would be used by SBA loan reviewers to evaluate the good-faith certification that borrowers made on the PPP Borrower Application that the economic uncertainty at the time of the loan application made the loan request necessary.

The creation of the questionnaires came under great scrutiny and criticism from borrowers and practitioners alike, as the questionnaires included various questions and information requests that appeared to be irrelevant to the determination of whether the borrower faced significant economic uncertainty at the time the PPP loan application was made. Additionally, there is no provision in the law or regulations that provides any clear rubric addressing how the SBA would or should make such a determination.

In December 2020, the Associated General Contractors of America (AGC) filed a lawsuit challenging the legality of the questionnaire and the process used by the SBA and the Office of Management and Budget (OMB) to develop, approve, and publish it.

On June 21, the SBA filed a request with the OMB to discontinue use of the Forms 3509 and 3510. In explaining why the SBA proposed that the questionnaires be discontinued, the SBA cited the use of the questionnaires as a deterrent of abuse of the Paycheck Protection Program, which stopped accepting new applications at the end of May 2021; the fact that a significant number of the reviews of the questionnaires performed to date have reflected that borrowers met the good faith certification requirement; and comments received from members of the public indicating that the questionnaires were unnecessary and burdensome.

On July 29, the Treasury Department updated its PPP FAQs to include Q&A Item 69, “Why is the SBA discontinuing use of the Loan Necessity Questionnaire (SBA Form 3509 or 3510)?” The FAQ response indicates, in part, that “based on the results of the loan reviews that it has completed thus far SBA believes audit resources will be more efficiently deployed across all loans if the loan necessity questionnaire is discontinued. The loan necessity reviews, including the review of the borrower’s completed Loan Necessity Questionnaire, are lengthy and have caused delays beyond the 90-day statutory timeline for forgiveness, thus negatively impacting those borrowers that made their loan necessity certification in good faith. For these reasons, SBA is discontinuing any reliance on the Loan Necessity Questionnaires.” [Emphasis added.]

If your organization has recently received a request from your lender to provide the information in Form 3510, we suggest that you work with your tax or legal counsel and lender to address the developments described herein.

If your organization would like assistance with the PPP loan forgiveness process or would like assistance evaluating the implications of these developments, we would be happy to help!

 

The contents of this publication do not constitute legal, financial, accounting, tax, or any other type of professional advice. For professional advice regarding the subject matter addressed herein, the services of a competent professional should be obtained.