On October 26, 2020, the Small Business Administration (“SBA”) published a notice soliciting public comments on two new questionnaires: SBA Form 3509 (For-Profit Borrowers) and Form 3510 (Non-Profit Borrowers). The SBA intends to use these forms to gather supplemental information regarding the economic uncertainty of the Paycheck Protection Program (“PPP”) borrowers that received $2 million or more in loans. Though these forms are currently in proposed form for public comment, they do provide the first real insight into the SBA’s criteria for evaluating the veracity of a borrower’s certification of economic uncertainty. While the form itself is troubling, the timing for completion is worse. The SBA has indicated that once lenders begin distributing these forms, borrowers will have just 10 days to compile their responses.
The SBA’s stated purpose for these forms is to “maximize program integrity and protect taxpayer resources.” More simply, the SBA hopes to efficiently gather and analyze information that it believes is necessary both to evaluate good faith certifications and determine whom it should contact to review in greater depth and in what order. The forms incorporate several elements that had not been previously discussed by the SBA as factoring into the certification review.
The form divide questioning into two broad categories: the borrower’s activity before and during COVID, and the borrower’s liquidity prior to taking the loan. The borrower is required to make several specific disclosures about each, and provide supporting documentation.
At the end of these questionnaires, borrowers are provided an opportunity to submit any additional information or comments that bear on any of the questions therein. These supplemental responses are critical to providing context that more effectively communicates the individual borrowers’ economic need for the PPP loans. As noted above, upon receipt from their lenders, borrowers will have only 10 days to complete and return the questionnaires and all supporting documents. Failure to complete and return the questionnaire in this short window may result in the SBA demanding immediate return of the loan amount.
Given the tight turnaround, borrowers are encouraged to start putting this information together in advance to receiving such a request. Given the purposes of the forms, care must be taken to present the borrower story in sufficient context and to be able to substantiate the basis of the claim to economic uncertainty. To do otherwise risks forgiveness and invites an investigation. Even prior to the release of the above forms, we were working with many of our clients to build out a showing of economic uncertainty. If you have any questions please contact Steven Miller at [email protected].
Steven Miller is a former acting Commissioner of the IRS, and currently leads a team of tax attorneys and specialists at alliantNational. If you have any questions or concerns regarding high-wealth or high-income exams, please contact Steve at [email protected]