Paycheck Protection Program: SBA Discontinues Use Of Loan Necessity Questionnaire

Vinson & Elkins LLP

The Small Business Administration (“SBA”) has officially discontinued use of the Loan Necessity Questionnaire previously required for forgiveness of Paycheck Protection Program (“PPP”) loans of $2 million or more. We described the questionnaire in a previous client alert.

The stated purpose of the questionnaire was to collect supplemental information to be used by SBA loan reviewers to evaluate a PPP borrower’s original certification that economic uncertainty made the loan request necessary. The questionnaire sought information about revenues, effects of shutdown and other pandemic-related orders, disruptions in operations and supply chains, capital improvement projects, liquidity, dividends, market capitalization, debt, owner compensation, and parent companies. Much of this information was requested for the borrower’s covered period — the period after the certification was made and the PPP loan had been disbursed.

Many borrowers questioned the legitimacy of reevaluating borrowers’ necessity certifications months after those certifications were made. They were concerned that post hoc reassessments of necessity would prove problematic, particularly for companies that had fared better than expected during the pandemic.

The Association of General Contractors (“AGC”) sued the SBA in December, alleging that the SBA violated administrative procedures in adopting the questionnaire and that the SBA was improperly using it to change PPP loan requirements. In late June 2021, the AGC announced that it had learned the SBA intended to withdraw the questionnaire and to stop requiring borrowers with larger PPP loans to complete it before receiving forgiveness.

Indeed, on June 21, 2021, the SBA had sought approval from the Office of Management and Budget (“OMB”) to stop using the Loan Necessity Questionnaire. The SBA explained that, because the application period for PPP loans had ended (after several extensions), the questionnaire was no longer needed to serve “a deterrent effect and prevent[] program abuse by applicants that could not make the loan necessity certification in good faith.” The SBA also noted that its loan reviews had shown that significant numbers of borrowers had met the requirement to certify necessity in good faith.

Furthermore, the SBA noted that its loan necessity reviews — which include review of information submitted in response to Loan Necessity Questionnaires — have caused delays in approving borrowers’ applications for forgiveness of the larger PPP loans. These delays have caused the SBA to exceed its 90-day deadline to review lenders’ decisions on loan forgiveness. By withdrawing the Loan Necessity Questionnaire, the SBA aims to “reduce the burden on PPP borrowers with loans of $2 million or greater.”

The SBA’s discontinuation of the Loan Necessity Questionnaire is certainly welcome news to PPP borrowers with larger loans. While this particular burden has been eliminated, a borrower must continue to maintain all records related to its PPP loans for six years after the date when the loan is forgiven or repaid in full, including documentation submitted with the loan application, documentation supporting a borrower’s certifications and eligibility, documentation supporting its forgiveness application, and documentation demonstrating material compliance with PPP requirements. Authorized SBA representatives must be given access to these materials upon request.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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