By Demetrius Robinson & Kevin O’Connor

PPP borrowers who received more than $2 million through the forgivable loan program may be in for a surprise request from their lender in the next few weeks. In late October, the Small Business Administration (SBA) quietly requested comments on two new forms that would probe whether borrowers applied for their PPP loans in good faith. If these forms are approved as proposed, they would ask far more detailed questions than many contemplated this spring when the Treasury Department first announced that loans over $2 million would be subject to greater levels of scrutiny.

The addition of a brand new demand for information that wasn’t included in the CARES Act or contemplated when the loans were made increases the frustration PPP borrowers feel about a program that was supposed to be a boon and is turning into an albatross. Since the PPP program was originally announced, the SBA has continued to retroactively add new requirements and rules to the program, while the IRS has eviscerated the intent of the program by announcing it will disallow deductions for amounts paid with loan proceeds.

As a quick refresher, companies were required to make a good faith certification when they applied for their loan that it was required to support ongoing operations due to the “current economic uncertainty.” Subsequent SBA guidance provided that “any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” The SBA went on to state that if the SBA determined that a borrower lacked “an adequate basis for the required certification concerning the necessity of the loan,” then the SBA would first seek repayment of the loan instead of pursuing other avenues, including prosecution for fraud.

The forms are the SBA’s first attempt to collect additional information from borrowers to understand whether or not they have met the “current economic uncertainty” test. It is important to note that the original loan application nor any previous SBA publications have included the level of detail requested in the forms. The two forms, Form 3509 for for-profit businesses and Form 3510 for nonprofit organizations, include 21 questions with most questions including additional sub-questions, including the following:

  • 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 in order 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 in excess of $250,000 or prepayment of debt obligations during the covered period;
  • Corporate structure; and
  • 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, that the information is accurate, and that they understand that making a false statement can subject the signator to fines and/or imprisonment.

KJK’s proprietary PPP Necessity Test assists borrowers in documenting that they met the PPP loan requirements at the time of application. While the test and accompanying recommended memo were best prepared contemporaneously with the application, borrowers can still benefit from analyzing their economic need before they receive a request from their lender or the SBA. All PPP borrowers should continue to ensure that they have appropriately documented their use of PPP funds loan and that they meet the necessity test at the time of the request.

If you have questions about the PPP Loan program or the PPP necessity testing, please contact our PPP Compliance Team including Demetrius Robinson at or (614) 427-5749 or Kevin O’Connor at or (216) 310-4938.