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PPP Update: Loan Necessity Questionnaires

Client Alert

On October 26, 2020, the Small Business Administration (“SBA”) published a notice in the Federal Register which foreshadowed the release of two new forms seeking information from for-profit and nonprofit organizations that received Paycheck Protection Program (“PPP”) loans of $2 million or more. If approved, the SBA would use information from these forms to evaluate and determine whether economic uncertainty made a PPP loan request necessary.

Originally, as part of the PPP application process, borrowers were required to certify that current economic uncertainty made its loan request necessary to support ongoing operations – a necessity certification. Then, with the release of FAQ 31, the SBA informed borrowers that a company – private or public – with substantial market value and access to capital markets will unlikely be able to make the required necessity certification in good faith. Accordingly, FAQ 31 provided that such company should be prepared to demonstrate, upon request, the basis for its certification. In response to this guidance, BMD urged its clients to begin documenting the specific circumstances that existed to substantiate the economic uncertainty or economic need at the time they applied. If you already went through this exercise, you will have a head start on answering the questions in the newly released forms.

The two forms – For-Profit Form 3509 and Nonprofit Form 3510 – purportedly have short timelines in which they must be completed and returned to lenders (10 business days from the receipt of the form/request) and the SBA (5 business days from receipt from borrowers). The forms require accurate disclosure of facts regarding business activity and liquidity, which bear on the necessity certification. Although these forms are still subject to comment until November 25th, it is important for borrowers with loans of $2 million or more to begin to think about the questions and possible answers.

Each form’s first section will inquire about the borrower’s business activities, including:

  • Sales in Q2 2020 vs. Q2 2019
  • Were the ordered shutdowns by a state or local authority after the National Emergency Declaration by President Trump (March 13, 2020)?
  • Were operations significantly altered due to state or local shutdown orders related to COVID? How? How much did these alterations cost? Were these voluntary?
  • Were operations voluntarily reduced or ceased? Why? How long?
  • Were any new capital improvements made between March 13, 2020 and the end of your covered period not due to COVID? Why? How much money?

Each form’s second section will inquire about the borrower’s liquidity, including:

  • What were your cash and cash equivalents on the last day of the calendar quarter immediately prior to the date of your PPP application?
  • Did you make any dividends or distributions (other than for tax purposes) between March 13, 2020 and the end of your covered period? How much?
  • Were any loans paid off before contractually obligated between March 13, 2020 and the end of your covered period? How much?
  • Were any employees or owners compensated in an amount that exceeds $250,000 on an annualized basis? If so, how many? What was the total compensation for those individuals during the covered period?
  • Were any other funds received from the CARES Act? If so, what program and how much?

While both For-Profit Form 3509 and Nonprofit Form 3510 follow the same format, the Nonprofit Form 3510 asks the following:

  • What type of endowments and other non-cash investments (i.e., equity, bond and real estate holdings) do you have?
  • Any restricted funds?

Regardless of the form, borrowers should heed the following advice when it comes to these forms: 1) be truthful; 2) ensure all responses are complete and accurate; and 3) start preparing answers to the above questions now, even before the comment period closes. It is also important to note that the contents of these forms may change between now and the end of the comment period; therefore, our SBA Team is ready, willing and able to help with this process.

For more information, contact your primary BMD Attorney.


Community Banks: Collaboration, not isolation, is the key to protecting/ enhancing the cannabis business you pioneered

As we prepare for the plenary session of the informal institutional cannabis lenders community announced in my previous article, I am pleased to advise that participants now include 5 of the best-known dedicated loan funds; a select group of commercial banks ranging in size from single state community banks to mid-size regionals making cannabis loans into the mid-8 figures; and, a syndicator of credit union cannabis loans.

Inflation Reduction Act: Healthcare Provisions

On August 16, 2022, President Joe Biden signed into law the Inflation Reduction Act (the “Act”), a landmark climate, healthcare, and tax bill. Though the Act’s climate provisions have received most of the media attention, the healthcare aspects of the Act present some of the most significant changes to the American healthcare system since the passage of the Affordable Care Act.

The Current State of Assignment of Benefits Litigation in Florida

On May 25, 2022, Florida lawmakers approved property insurance reforms that remove attorney’s fees, with respect to assignment of benefits (“AOB”) property insurance litigation. One-way attorney’s fees are a longstanding problem in Florida and the reforms come at a time when AOB litigation increasingly affects homeowners in a negative way.

Proposed Community Revitalization Grants for Ohio Projects

Jason A. Butterworth client alert ohio tax credits historic preservation tax credits community revitalization grants

Ohio Senate Bill 225 Paves the Way for Greater Investment in Opportunity Zones and Historic Districts

Ohio Senate Bill 225 is poised to make dramatic enhancements to certain tax credit programs in Ohio, specifically those surrounding investments in “Opportunity Funds” and historic buildings. Signed into law by Governor Mike DeWine in June 2022, the Bill is positive news for real estate developers working to revitalize Ohio communities with investment and rehabilitation projects.