Last week the Small Business Administration published a notice in the Federal Register about a form required by all Paycheck Protection Program recipients with loans larger than $2 million seeking forgiveness. This is the first concrete piece of information coming from SBA since they announced that all loans over $2 million would be reviewed. The 9-page form is available here, businesses that are required to fill out the form will receive it from their lender.
The form asks for significant financial and operational information that was not required by the CARES Act when the program was created. The form asks companies to compare second quarter financials from 2020 and 2019 if available and seeks information on government or voluntary shutdowns. The form also asks for costs associated with changes in operations such as changes in employee workspaces and changes to how customers are served.
SBA does make it clear that borrowers are required to fill out and return the form within 10 days of receiving it or risk losing forgiveness, however it is not clear if any of the answers to the form will impact forgiveness. Again, the underlying CARES Act which created the PPP loans do not require any loss of revenue or forced closure, simply an economic uncertainty at the time of the loan application and the form itself is not a challenge to that claim of economic uncertainty. SBA does say the form is intended to “maximize program integrity and protect taxpayer resources.”
Many of the questions are similar to provisions proposed for second draw PPP loans that is being negotiated by Congress and the form could simply be a guidepost to determine if such requirements are necessary to regulate which companies do have an economic need for future loans. If SBA decides to begin challenging business owners’ certification of economic uncertainty based on financial information contained in this form, it will face backlash from the business community and likely a legal challenge because it does far exceed the CARES Act requirements for eligibility.
Many businesses are still waiting on answers from lenders and the SBA on the status of their forgiveness and this new form will likely delay any certainty on when loan forgiveness will be approved. The PPP Flexibility Act gave business owners 10 months before any loan payments will be required.
We will continue to update you as we receive more information. Please reach out to Alex Ayers with any questions.