December 10, 2020

SBA Publishes FAQ Explaining Loan Necessity Questionnaire

2 min

On December 9, 2020, the Small Business Administration (SBA) published FAQ Number 53, addressing why certain borrowers will receive Paycheck Protection Program (PPP) Loan Necessity Questionnaires. (See our prior alert on the questionnaires here.) The SBA also publicly released for-profit and nonprofit questionnaires.

FAQ Number 53 confirms information that appears on the face of the questionnaires:

  • SBA is reviewing all loans of $2 million or more, and the questionnaire is part of this process.
  • The questionnaire is due 10 business days after a borrower receives it from their lender.
  • "A request to complete the Loan Necessity Questionnaire does not mean that SBA is challenging a borrower's certification that is required by the CARES Act."
  • The SBA will be applying a "totality of the circumstances test" and conducting a "multi-factor analysis" of the questionnaire responses.

FAQ 53 also provides additional context about the SBA's expectations for the review process:

  • SBA notes that it is possible for a borrower to have made its economic need certification in good faith at the time of application, "even if subsequent developments resulted in the loan no longer being necessary." However, SBA "may take into account the borrower's circumstances and actions both before and after the borrower's certification to the extent that doing so will assist SBA in determining whether the borrower made the statutorily required certification in good faith at the time of its loan application."
  • The SBA expects that it will request additional information, when necessary. If additional information is requested, "borrowers will have an opportunity to provide a narrative response to SBA explaining the circumstances that provided the basis for their good-faith loan necessity certification." (See our prior alert on preparing an economic need narrative here.)
  • It appears that the SBA will make a final determination that a borrower did not have the requisite economic need only after giving the borrower an opportunity to submit additional information. FAQ 53 states: "SBA will make a final determination that a borrower lacked an adequate basis for its loan necessity certification after reviewing any additional information that a borrower chooses to submit."