SBA Drops Questionnaire For Loans of $2M And Above
After more than a year of the Paycheck Protection Program and legal challenges, the Small Business Administration (SBA) is dropping their request that larger borrowers provide supplemental financial information. Due to this change, it is easier for big borrowers to apply for PPP loan forgiveness. The SBA’s effort marks an about-face for the agency that landed in hot water after allowing publicly traded companies to access the program intended for small businesses. The SBA began informing lenders that it plans to eliminate the loan necessity review for PPP loans of $2 million or more. They said they will no longer request the loan necessity questionnaire for any PPP loan reviews as well. In October, the SBA asked lenders to provide loan necessity questionnaires for both for-profit and nonprofit PPP loan borrowers that had or exceeded $2 million. On the other hand, smaller businesses were only required to self-certify for potential need.
The questionnaire itself took a lot of time and energy for borrowers to fill out. It asks for a litany of supplemental financial information such as gross revenue, capital on hand, and a list of the highly paid executives. Not to mention it had questions regarding business operations and business activity. Many businesses worried that the information they were providing could fall into the public domain.
In April of 2020, the U.S. Treasury encouraged businesses with an alternative way to raise funding to return the money. It also encouraged companies to look deeply into if they need federal funds to guard against the economic uncertainty. The U.S. Treasury also added that a public company with substantial market value and access to capital markets would not meet the standards required for attaining a government-backed loan. The SBA also issued a final interim rule. This rule notes that hedge funds are not eligible for federal assistance through the PPP. The SBA alluded that private equity-backed companies would face a level of scrutiny like public companies when applying for a PPP loan.
Closer inspection of the bigger loans was thought to be useful for preventing companies that did not need emergency funding from tapping the PPP loans. It also served as a mechanism for weeding out publicly traded companies and other firms that have alternative funding.
After a year of the PPP, the SBA has helped in loaning over $780 billion in emergency funds to more than 8 million small businesses throughout the U.S.A. The SBA’s interests are to keep the forgiveness process streamlined and drama-free. Former director of the SBA’s office of capital access, Bill Briggs, said that the SBA is looking to further expedite the forgiveness process for borrowers and ease some administrative tasks that the agency is currently facing. In December of 2020, the Associated General Contractors (AGC) of America filed a lawsuit against the SBA, seeking to amend the loan necessity questionnaire to allow borrowers to provide additional context explaining the totality of their circumstances. The AGC notes in their complaint that the questionnaire does not ask borrowers to describe the status of their operations and the attendant business anxieties back in the spring. Instead, it focuses on what came after, over the ensuing months of 2020. This pushed the SBA’s information request outside their purview. The goal of this lawsuit was to achieve a more rational review of what borrowers in general knew and did not know at the time they applied for loans. They were also trying to persuade the SBA that economic uncertainty was a major factor.
Looking past what may have been the SBA’s reasoning behind the change, businesses should be looking to complete the next step and figuring out an action plan. Although businesses won’t need to file the supplemental form anymore, they may still need to provide financial documents of need. After receiving forgiveness, businesses won’t be “off the hook” either, they may be audited many years later. It is a good idea for businesses to hold onto financial documents relating to PPP loans for at least 6 years.
Talley’s professionals have spent hundreds of hours reviewing the law, regulations, and SBA PPP FAQs issued on an almost daily basis and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or forgiveness audit process.