SBA Certification Questionnaire for PPP Borrowers
On October 26, 2020, the Small Business Administration (SBA) issued a Notice in the Federal Register seeking approval from the Office of Management and Budget (OMB) to collect information about PPP borrowers who received a PPP loan in excess of $2 million. The Notice states collection of information by the SBA would be done through the requirement that those certain PPP Borrowers complete a questionnaire (note: there is one for for-profit entities and one for non-profit entities). The Notice provides for a comment period of 30 days; meaning the published form questionnaires constitute drafts that may change to reflect comments submitted during the comment period.
If the form questionnaires are approved, the Notice and form questionnaires imply that PPP lenders will send a questionnaire to their PPP borrowers who received a PPP loan in excess of $2M. The borrowers would be required to return the questionnaire within ten days of receipt. Upon return of a completed questionnaire, the PPP lender would be required to submit the completed questionnaire to the SBA within five days.
While the questionnaires are currently drafts, these drafts provide insight into the SBA’s approach to review of certifications made by PPP borrowers who received a PPP loan in excess of $2 million. In particular, certain questions relate to financial results of the PPP borrower, which may indicate that the SBA incorrectly intends to use financial results subsequent to the PPP loan application to assess whether the PPP borrower made the “uncertainty certification” (or “necessity certification”) in good faith. This is concerning as uncertainty about the future is not hindsight or what actually happened in the future.
In addition, the nature of certain question(s) does not take into consideration uncertainty that businesses may have had about the ability of employees to efficiently work remotely or what would happen if employees became ill or had to miss work to care for family members or assist with school for their children. If the SBA incorrectly applies the future results or capability of a business and its employees to the unknown at the time of application, PPP borrowers may need to challenge such SBA interpretations through legal proceedings.
As another example, the form questionnaires include questions related to prepayment of outstanding debt (debt paid before contractually due). Again by this questioning, it may indicate that the SBA deems prepayment of debt as a signal that a PPP borrower did not make a good faith “necessity certification” at the time of PPP loan application. We again believe this would be an incorrect conclusion by the SBA. The purpose of the PPP loan program was to encourage businesses to continue to spend money and operate in a fiscally responsible manner, so the economy could easily restart. If the SBA now penalizes PPP borrowers for spending money, behaving in a fiscally responsible manner and operating their businesses, the intent of the PPP loan program is not upheld and could be challenged.
It is reasonable for the SBA to obtain a basis from PPP borrowers of their certifications and, more specifically, a borrower’s good faith belief that, when applying for a PPP loan, “the current economic uncertainty made the loan request necessary to support the ongoing operations of their business.” Further, it may be beneficial for the SBA to obtain information related thereto to ease the review and audit process. However, the SBA must realize that many businesses have actually remained stable or even thrived for various (and often unforeseeable) reasons. This does not mean those businesses lacked uncertainty about economic conditions at the time of the PPP loan application. Nor does it mean that the PPP borrower should not be entitled to forgiveness of their PPP loan. Virtually all business, whether they obtain a PPP loan or not, were legitimately concerned about how the pandemic would affect them.
In order to prepare for the possible use of these draft forms, PPP borrowers should perform an internal assessment and document gathering process to prepare a written assessment to support the certifications made when applying for their PPP loan. Further, with the SBA being entitled to request any documentation from PPP borrower related to certifications, PPP borrowers should consider requesting legal counsel or a third party to prepare a certification justification memorandum for their business related to their PPP loan certifications. Such memorandums or engagement of legal counsel may also assist borrowers in completion of any approved questionnaire in a manner to limit concern raised by the SBA.