This Memorandum is subject to further review and update as circumstances develop and should not be relied on for any legal advice without consultation with an attorney.
On October 26, the SBA published a nine-page questionnaire that is required to be completed, signed and returned by any recipient of a PPP loan in the original principal amount of $2 million or greater. This is consistent with prior guidance that loans of $2 million or greater would face heightened scrutiny from the SBA. The stated purpose of the questionnaire is to assist the SBA in reviewing the certifications made in each recipient’s PPP loan application. However, most of the questions on this new questionnaire relate to items that were not part of the certifications made in original the PPP application form. Many of the questions also relate to the period of time after PPP loans were granted, while the original PPP application form could only speak to matters as of the time applications were submitted. For these reasons, the questionnaire may give us new insight into the nature and scope of regulatory and enforcement risks on PPP loans generally.
Here is a summary of the types of questions on the questionnaire, and the clues they may give us regarding potential enforcement risk on PPP loans:
If your business was the recipient of a PPP loan in excess of $2 million, we advise you to begin gathering this information now, as the questionnaire is required to be completed within ten business days after receipt from the PPP lender. If your PPP loan is under $2 million, you will most likely not be required to fill out a questionnaire, but the questions nevertheless give us a useful insight into the SBA’s current philosophy and areas of focus when reviewing loan and forgiveness applications, and we would recommend at a minimum that you consider these questions and how you would answer them if required. Although all PPP loans over $2 million will be reviewed, the SBA may also review any other loans at its discretion. We would also advise our clients to consult with us when completing this questionnaire and also when submitting forgiveness applications.
On October 2, the Small Business Administration published guidance regarding the treatment of PPP loans in “change of ownership” transactions. There are a number of important takeaways:
If you are involved in any transaction that is a potential “change of ownership” under these regulations, and one of the parties has an outstanding PPP loan, please consult us for more detailed advice.
On November 18, the IRS issued a ruling stating that business expenses that are paid with PPP loan proceeds (such as payroll and rent) will not be deductible in the 2020 calendar year, if there is a reasonable expectation of forgiveness for the PPP loan. If you have an outstanding PPP loan, you should consult your accountants and tax advisors to ensure that your business is not expecting a deduction that will not be available.