The U.S. Small Business Administration (the “SBA”), in consultation with the Department of the Treasury, has further updated its Frequently Asked Questions (“FAQs”) regarding the issuance of Loan Necessity Questionnaires to certain Paycheck Protection Program (“PPP”) borrowers (“PPP Borrowers”). Such additional guidance comes nearly a month after the SBA initially released Questionnaires to PPP lenders (“PPP Lenders”) for them to require completion by PPP Borrowers who borrowed $2 million or more in PPP loans, as detailed in our prior Alert. While many hoped that the SBA would retract certain of the Questionnaire’s post-application date inquiries related to a PPP Borrower’s good faith economic need at the time of the application, the FAQs have confirmed the continued use of the Loan Necessity Questionnaires in this context, including consideration of a PPP Borrower’s post-application circumstances as it relates to its “economic need”.

Per FAQ 53, the SBA will continue to provide PPP Lenders with the Questionnaire for distribution to PPP Borrowers who borrowed $2 million or more, in an effort to review such loans (and other loans as appropriate) for eligibility, fraud or abuse, and compliance with PPP loan forgiveness requirements. The SBA indicated that it will use the Questionnaire as a screening mechanism to assess a PPP Borrower’s initial “economic need” certification on its application (i.e., that “[c]urrent economic uncertainty makes [the PPP loan] request necessary to support the ongoing operations of the [PPP Borrower]”). The FAQ specifically states that the assessment will be “based on the totality of the borrower’s circumstances through a multi-factor analysis” and that the PPP Borrower is required to have made the certifications “in good faith at the time of the loan application, even if subsequent developments resulted in the loan no longer being necessary”.  However, the FAQ further states that the SBA will consider the PPP Borrower’s circumstances and actions both before and after such PPP Borrower’s application, to the extent that doing so will assist the SBA in determining the validity of the statutory economic need certification at the time of the application. The FAQ provides that the Questionnaire is not intended to indicate that a PPP Borrower’s certification is being challenged, but rather to assess whether such PPP Borrower had an adequate basis for making such good-faith certification at the time of application.

While it is suggested that the Questionnaire is being used as screening mechanism for PPP forgiveness applications, it appears that post-application circumstances will be taken into consideration in assessing a PPP Borrower’s  good faith “need” certification. PPP Borrowers with loans at or above the $2 million threshold should be prepared within 10 business days of submission of its PPP loan forgiveness application, not only to certify to the information contained in the Questionnaire, but to gather, review and ultimately produce all relevant documentation. Further, such PPP Borrowers should be prepared for any follow-up inquiries from the SBA.