SBA drops review of PPP loans of $ 2 million and over


Applying for the Paycheck Protection Program loan forgiveness is about to get easier for large borrowers.

After months of requiring financial documentation proving the need for borrowers with PPP loans of $ 2 million or more, the Small Business Administration took action this week to waive some of those requirements. The effort marks an about-face for the agency, which has landed in hot water after allowing listed companies access to the small business program. It also means a faster forgiveness process for some borrowers.

On Tuesday, the SBA began advising lenders that it plans to remove the need-for-loan review for PPP loans of $ 2 million or more, adding that it intends to post an FAQ. on the subject “shortly”. And with immediate effect, the SBA says it will no longer request the Loan Necessity Questionnaire (SBA Form 3509) for any PPP loan review. (He will also pull the Nonprofit Loan Necessity Questionnaire, SBA Form 3510.) The agency did not respond to a request for confirmation of its intention to cancel its financial reviews of larger borrowers; Inc. has reviewed a copy of the letter it sent to the lenders.

In October, the agency began asking lenders to provide loan necessity questionnaires to for-profit and non-profit borrowers with P3 loans of $ 2 million or more. Rather, small borrowers simply had to self-certify the potential need.

“It saves time and money,” says Carmen Calzacorta, lawyer specializing in commercial transactions at Schwabe, Williamson & Wyatt, a law firm with offices in the Pacific Northwest. She notes that the additional financial checks and additional reviews have pushed some pardon requests for eight months, beyond the usual five-month decision deadline. The lender, who files the forgiveness request 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 asks for additional information, they suspend 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 might fear that this information will fall into the public sphere, if a future freedom of information law calls for this data to be requisitioned.

To be sure, these changes do not unwind all SBA and US Treasury checks on larger loans. In April 2020, the US Treasury encouraged companies with other means of raising money – say, from investors through public markets – to repay the money. It has also encouraged companies to take a deep look at whether they really need federal funds to guard against economic uncertainty in the future. He added that “a state-owned enterprise 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, released a final provisional rule noting that hedge funds are not eligible for federal aid through the PPP. He said privately financed companies would be subject to a similar level of control as public companies when applying for a PPP loan.

Closer inspection of larger loans was seen as helpful in preventing businesses that may not need emergency financing from operating the forgivable loan program. It was also a mechanism to eliminate publicly traded companies or other companies 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 to access the PPP.

Yet after more than a year of PPP, in 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 free drama could be increased, says Bill Briggs. , the former director of the SBA’s access to capital office. “The SBA seeks to further expedite the forgiveness process for borrowers and to ease some of the pressing administrative tasks facing the agency this year.”

The SBA may also seek to control legal challenges. In December 2020, the Associated General Contractors (AGC) of America, a trade association based in Arlington, Virginia, filed a complaint against the SBA seeking to modify the Loan Necessity Questionnaire to allow borrowers to provide additional context explaining their entire situation. For example, the AGC notes in its complaint that the questionnaire does not ask borrowers to describe the state of their operations and the resulting business angst in the spring, when economic uncertainty was at its height. Instead, the questionnaire focuses on what followed, over the following months of 2020 – effectively pushing the SBA’s request for information outside of its purview.

“What we were hoping to get was a more rational look at what borrowers in general actually knew and didn’t know when they applied for their loans. We were trying to persuade the SBA that economic uncertainty was a major factor,” said Mike Kennedy. , AGC’s general counsel. “There seemed to be a fundamental disconnect in our minds between the certification borrowers made and the questions the SBA was asking.”

Whatever the reasons for the change in the SBA, the next step for companies now is to develop a plan of action. Although you no longer need to complete this additional form, you may still need to provide the necessary financial documents, Calzacorta explains. “After forgiveness, they are not out of the woods. [Businesses] could be audited later. Many of these programs are audited years later, ”she says. For this reason, she suggests keeping the financial records for a PPP loan for six years.

Calzacorta also suggests doing the job of collecting potentially useful financial information anyway. “What we recommended is to provide their narrative of need at the time of request,” while everything is still fresh, she said. “As long as they make it easier for the SBA, the faster it will be. If they don’t give them enough information, they may be subject to an additional request, which will only delay the process. . “

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