Tips for Supporting $2M+ Paycheck Protection Program Loan Necessity

While forgiveness may be simplified for PPP loan borrowers of $50K or less, things may not be so simple for borrowers in excess of $2M.

As we reported last week, the Small Business Administration (SBA) is expected to issue two new forms for PPP borrowers with aggregated loans of $2M or more. The purpose of these forms is to provide information to the SBA so that they can assess the borrower’s economic circumstances and their ultimate need for the funds that were borrowed under the PPP loan program.

It is expected that these forms will be provided to the borrower by their lender, which will need to be completed and filed with their bank within ten business days upon receipt from the lender. The lender will then have five business days to submit this information to the SBA. (Note that these forms are subject to a comment period which expires on November 25th, so it is very possible that the SBA may change these forms.)

These forms are intended to be the start of the SBA’s process to assess a business’ needs for the PPP funds but are not the only information that the SBA will need in making any determinations. However, after receipt and review of the forms, the SBA may request additional information to complete their assessment.

Given that there were approximately 52,000 loans granted in excess of $2M, it will take some time for the SBA to absorb all of this data and make additional inquiries for their assessment of economic need.

As businesses are completing the SBA form for loan necessity, there are a few important pointers that need to be considered for both the For-Profit Form 3509 and Nonprofit Form 3510.

  • Provide accurate responses to all questions.
  • Several questions provide an opportunity to provide additional information; however, these questions are limited to a 1,000-character response. These responses, although optional, are extremely important in demonstrating your position, albeit very challenging given the limited space to augment rationale for the economic need. We encourage you to be brief but direct on points that support your positions. If the SBA requests more information, they will ask for it. As we’ve advised in past articles, maintenance of strong documentation and history in support of your economic need at the time of borrowing the PPP funds is essential, and if you haven’t fully built your case, we encourage you to begin doing so now.
  • We suggest you start working on these responses now and don’t wait for your lender to send you the form. This will provide you with more time to provide appropriate responses to these optional questions.

You may also want to check in with your legal counsel, as we’ve heard some attorneys believe many of the requests for information are an overreach and have no relevance to the economic assessment that a business would have done at the time of application for a PPP loan. You may wish to review with your advisors the level of appropriate documentation that you should retain in your files should you be challenged by SBA.

Bank Accounts for PPP Funds

We’ve heard a number of companies originally set up their receipt of PPP funds in a separate bank account. This was the best practice to ensure they maintained good tracking of the expenditures of PPP funds. If you have been continuing to maintain those funds in a separate account, you should be aware that you are under no legal obligation to do so if you have already expended the funds. If you have uncertainty as to whether SBA might attempt to drawback those funds in the future, you could start using those funds in the meantime to augment your operating cash, pay down your bank revolving line of credit or invest the funds in a way that is prudent for your business. If you decide to pay down your revolving line of credit and if you have any concern as to the risk of drawback from SBA, you might wish to discuss this with your banker in advance to ensure that they retain that revolving line availability for you in the future.

Our team stands ready to help you in honing your responses to these questions. Contact your BMF Advisor to assist in your preparation of these forms.

Check out all our Paycheck Protection Program articles and visit our COVID-19 Resource Center for information and additional resources for you and your business.

About the Authors

Dale A. Ruther
Dale A. Ruther
Partner Emeritus,
James E. Merklin
James E. Merklin
Partner, Assurance and Advisory


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