AICPA Joins 80+ Organizations Concerned About Paycheck Protection Program Loan Necessity Questionnaires

We previously reported that the Small Business Administration (SBA) issued a draft on October 26 to begin asking Paycheck Protection Program (PPP) lenders to issue “Loan Necessity Questionnaires” to borrowers that received $2 million or more in funds from the PPP. The purpose of these questionnaires will be to provide information to the SBA to assess the borrower’s economic circumstances and their ultimate need for the funds that were borrowed. However, these proposed questionnaires have been met with much criticism.

More than 80 organizations, including credit union groups, banking associations, contractors, the U.S. Chamber of Commerce and the American Institute of CPAs (AICPA), have signed onto a pair of letters to congressional leaders and to Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza expressing concerns about the new questionnaires. In their letters, the organizations provide a common-sense solution, recommending that if the agencies need more information about the necessity or suitability of a PPP loan, they require the borrower to provide a narrative statement and any documentation the borrower believes is appropriate to demonstrate that the loan was critical to support its ongoing operations.

The coalition, which represents millions of American workers and small businesses, recommends that the agencies temporarily suspend the use of the questionnaires (SBA Forms 3509 and 3510) while working with the group to “collectively address these issues and work together toward a better solution.” The coalition suggests that existing PPP Forgiveness Applications should continue to be used because they “…allow the agencies to examine, in greater detail and prior to the approval of loan forgiveness.”

This proposal aligns with earlier BMF recommendations to our clients and friends for borrowers to maintain records that informed their decision to apply for the loan, including the areas of uncertainty impacting operations. In a recent Journal of Accountancy article, Barry Melancon, CPA, CGMA, AICPA president and CEO said, “We previously recommended that [borrowers] keep contemporaneous records of what a business was dealing with, anticipating and deciding back at the time of the PPP loan.”

In the letters, AICPA and the other signatories identified policy and operational concerns, including the following:

  • The questionnaires focus on the wrong timeframe during which the PPP loan must be assessed. They seek gross revenue comparisons between 2020 Q2 and 2019 Q2 and other metrics and narratives that describe how the borrower has fared during the pandemic. However, borrowers were required to certify in good faith that the loan was needed at the time of the request. “Any circumstances that happened after the certification was made and throughout the pandemic should have no bearing on evaluating the borrower’s good fair statement at the time it made the certification,” the letter says.
  • The new forms ask for liquidity and revenue data, which could expose the personal finances of small business owners. The letter states that “The CARES Act did not include a means-based test, revenue reduction test, liquidity test or any other metric to assess financial standing in order to assign prioritization of PPP loans to certain borrowers over others.”
  • Questions about revenue and liquidity data signal a bias against PPP borrowers who survived or remain profitable during the pandemic. Steady or increased revenue with healthy liquidity and continuing employment is a sign that the PPP loan was successful.
  • Other questions raise concern that a borrower’s answer may lead to a misinformed analysis by the agencies. For example, requests for statements on whether closures or changes in operations were mandatory or voluntary and details on which governmental jurisdiction mandated the closures.
  • The questionnaires apply impractical compliance deadlines to borrowers and lenders that would be impossible in many cases. “The nine-page questionnaire demands a level and type of reporting never previously required from borrowers by statute or in any process in PPP lending thus far,” the letter states.

More than 5.2 million PPP loans totaling $525 billion were approved during the five months the program was accepting applications for assistance. About 30,000 of the loans were for $2 million or more, according to SBA reporting.

The SBA has only issued a draft of these questionnaires for public comment (see our last advisor) which closes on 11/25, then they will deliberate. Lenders are not able to send anything out until after the SBA issues the final forms.

We will continue to monitor the situation and keep you updated on further movement. Contact your BMF Advisor if you have received one of these questionnaires and would like to discuss next steps.

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

James E. Merklin
James E. Merklin
Partner, Assurance and Advisory


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