Applying for Paycheck Protection Program Loan Forgiveness is about to get easier for big borrowers.
After months of demanding financial documents proving the need of borrowers with PPP loans $2 million or more, the Small Business Administration took action this week to reverse some of those requirements. The effort marks an about-face for the agency which landed in hot water after allowing listed companies to access the small business program. It also means a faster forgiveness process for some borrowers.
On Tuesday, the SBA began notifying lenders that it plans to eliminate loan necessity review for PPP loans of $2 million or more, adding that it intends to post an FAQ on the topic “soon”. And effective immediately, the SBA says it will no longer ask for the Loan Need Questionnaire (SBA Form 3509) for any PPP loan review. (It will also draw the questionnaire on the need for a non-profit loan, SBA Form 3510.) The agency did not respond to a request for confirmation of its intention to reverse its financial reviews of heavy borrowers; Inc. reviewed a copy of the letter sent to the lenders.
In October, the agency began asking lenders to provide loan need questionnaires to for-profit and nonprofit borrowers with PPP loans of $2 million or more. Rather, small borrowers simply had to self-certify the potential for need.
“It saves time and money,” says Carmen Calzacorta, a corporate transactions attorney at Schwabe, Williamson & Wyatt, a law firm with offices in the Pacific Northwest. She notes that additional financial checks and additional reviews had pushed back some pardon applications by eight months, beyond the usual five months. decision time. The lender, who files the forgiveness application on behalf of the borrower, has 60 days before having to submit anything to the SBA; the SBA then has 90 days to return the funds to the lender. “If the SBA requests additional information, it suspends all dates,” she said.
Completing the questionnaire itself also takes more time and energy. The form asks for a litany of additional financial information such as gross income, available capital, and a list of highly paid executives, as well as questions regarding business operations and business activity. And some companies may be concerned about this information falling into the public sphere, if a future freedom of information law requires the requisitioning of this data.
Admittedly, these changes do not unravel all the SBA and US Treasury checks on larger loans. In April 2020, the The US Treasury encouraged companies with alternative ways of raising funds – say, from investors via public markets – to return the money. It also encouraged companies to take a hard look at whether they really needed federal funds to hedge against economic uncertainty in the future. He added that “a public company with substantial market value and access to capital markets” would likely not meet the standards required to obtain a government-guaranteed loan.
The SBA, also in April, issued a final interim rule noting that hedge funds are not eligible for federal assistance through the PPP. He said private equity-backed companies would face a similar level of scrutiny as state-owned companies when applying for a PPP loan.
The closer scrutiny of larger loans was found to be helpful in preventing businesses that may not need emergency financing from resorting to the forgivable loan scheme. It was also a mechanism to weed out publicly traded companies or other businesses that might have other sources of funding. At the start of the PPP, the Small Business Administration was pilloried for allowing publicly traded companies like Legal Sea Foods and PF Chang’s access to the PPP.
Yet after more than a year of PPP, during which the agency helped distribute more than $780 billion in emergency funding to more than 8 million small businesses, interest in streamlining the process of forgiveness and drama-freeness could be heightened, says Bill Briggs, the former director of the SBA’s capital access office. “The SBA is looking to further expedite the forgiveness process for borrowers and alleviate some of the pressing administrative tasks the agency faces this year.”
The SBA could also seek to rein in legal challenges. In December 2020, the Associated General Contractors (AGC) of America, a trade association based in Arlington, Virginia, filed a lawsuit against the SBA seeking to modify the Loan Need Questionnaire to allow borrowers to provide additional context explaining their entire situation. For example, the MCO notes in its complaint that the questionnaire does not ask borrowers to describe the state of their operations and the resulting business concerns in the spring, when economic uncertainty was at its peak. Instead, the questionnaire focuses on what happened after, in the subsequent months of 2020 — thereby pushing the SBA’s request for information out of its purview.
“What we were hoping to achieve was a more rational examination of what borrowers in general actually knew and didn’t know at the time they applied for their loan. We were trying to persuade the SBA that economic uncertainty was a factor. major,” says Mike Kennedy. , general counsel for AGC. “There seemed to be a fundamental disconnect in our minds between the certification that borrowers did and the questions that the SBA was asking.”
Regardless of SBA’s reasons for the change, the next step for businesses now is to develop an action plan. Although you no longer need to complete this additional form, you may still need to provide the financial documentation you need, says Calzacorta. “After the pardon, they are not off the hook. [Businesses] could be audited later. Many of these programs are audited years later,” she says. For this reason, she suggests keeping financial records for a PPP loan for six years.
Calzacorta also suggests doing the work of gathering potentially useful financial information anyway. “What we recommended was to provide their story of need at the time of request,” while everything is still fresh, she says. “To the extent that they make it easier for the SBA, the quicker it will pass. If they don’t give them enough information, they may be subject to an additional request, which will only delay the process. .”