The scrutiny continues. The Small Business Administration (SBA) recently requested that two new forms be required from borrowers of Paycheck Protection Program (PPP) loans in excess of $2 million. The forms will be used to assess whether borrowers applied for loans in good faith. Companies requesting loans were to make good faith certifications, claiming the funds would be to support their operations during the ongoing COVID-19 pandemic. These new demands were not included in the CARES Act and are one of many retroactively added requirements from the SBA. If the SBA determines the borrower lacked basis for the required certification, the SBA will first seek repayments before pursuing other avenues, including fraud prosecution. The IRS continues to disallow deductions for amounts paid with loan proceeds.
The two new forms, Form 3509 for for-profit businesses and Form 3510 for nonprofit organizations, ask for more detail than has been asked of any other forms, in an attempt to understand whether or not a borrower has met the requirements of the “current economic uncertainty” test. Questions include:
• Gross revenue during First and/or Second quarter for 2019 and 2020
• Whether the company was subject to any shutdown or “stay-at-home” order at the state or local level or otherwise significantly adjust its operations due to state or local demand
• Whether the company ceased operations due to COVID-19 or otherwise altered its operations to accommodate COVID-19 restrictions
• Cash (or cash equivalent) on hand prior to PPP loan application
• Whether the company has paid any dividends or other capital distributions (other than tax distributions)
• Payments of compensation more than $250,000 or prepayment of debt obligations during the covered period
• Corporate structure
• Other questions related to the company’s access to capital or use of capital during the PPP loan forgiveness covered period.
Finally, the forms require that the borrower, or an authorized representative of the borrower, certify that they have the authority to sign the questionnaire. To certify that the information is accurate, and that making a false statement can lead to fines and/or imprisonment.
If you have questions about the PPP Loan program, please contact Johnson & Bell Shareholder Mark D. Belongia.