November 4, 2020

The Small Business Association (the “SBA”) has begun requesting new and additional information from borrowers of Paycheck Protection Program (“PPP”) loans of $2 million or more, specifically related to the good faith certification. Prior to and since applying for the PPP, borrowers have been concerned about the certification that they were making or have made to obtain the PPP proceeds. The certification required borrowers to confirm: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The certification is actually a slight paraphrase of the statute’s good faith certification requirement, “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.”

We have been communicating with borrowers for some time to ensure that they have the proper documentation to support their good faith certification, just in case the SBA or IRS comes calling. Well, here is the first indication that the certification may be scrutinized. The category of borrowers that this may impact includes a borrower and any affiliates of the borrower with combined PPP loan totals of at least $2 million.  The SBA is using a new information request form, the Paycheck Protection Program Loan Necessity Questionnaire (the “Necessity Questionnaire”), to request the information from borrowers.

The Necessity Questionnaire for for-profit entities contains two sections, a Business Activity Assessment, and a Liquidity Assessment. The Business Activity Assessment includes questions regarding the borrower’s gross revenue for periods in 2019 and 2020, whether or not the borrower was subject to a governmental shutdown or other government order, whether or not the borrower has changed or altered its operations since March 2020, and whether or not the borrower has begun any new capital improvement projects since March 2020.  The Liquidity Assessment includes questions regarding the borrower’s cash holdings at the time of the PPP loan application, capital distributions made after March 2020, payments of outstanding debt after March 2020, compensation payments to highly-compensated employees after March 2020, the shareholder’s equity value at the time of the PPP loan application, the ownership structure of borrower’s entity, and whether or not the borrower received any other funds from any other governmental program.

Currently, the SBA is not requiring all PPP borrowers of $2 million or more to complete the Necessity Questionnaire.  If the SBA selects a PPP borrower to complete the Necessity Questionnaire, the PPP borrower will receive a copy of the Necessity Questionnaire directly from the lender servicing their PPP loan.  The PPP borrower will then have ten days to complete the Necessity Questionnaire and return it to the lender for submission to the SBA.  A failure to complete the Necessity Questionnaire could cause the SBA to determine that the borrower was ineligible for the PPP loan or any PPP loan forgiveness.

Nardone comment: We strongly encourage borrowers that are requested to complete the Necessity Questionnaire to work with legal counsel to ensure they have all required documentation, and that all information submitted with the Necessity Questionnaire is complete, accurate, and vetted for unintended consequences. This is not something that you should complete without appropriate oversight and counsel.

The SBA has indicated the purpose of the Necessity Questionnaire is to obtain information from a borrower that supports the good-faith certification made by the borrower on the PPP loan application.  The SBA will use the information provided by the borrower on the Necessity Questionnaire to confirm that the PPP loan was necessary due to the borrower’s economic uncertainty.  The SBA has specified that a request to complete the Necessity Questionnaire should not be considered a challenge to a borrower’s good-faith certification.

The lenders that we work with have indicated PPP borrowers should not proactively complete the Necessity Questionnaire, and should wait until they are contacted by their lenders or the SBA to complete the Necessity Questionnaire.  Please contact us if you have questions regarding the Necessity Questionnaire, or if you have received a request to complete the Necessity Questionnaire from your lender.

To the extent you are interested in reviewing the forms, there are two versions of the form; Form 3509 for for-profit borrowers, and Form 3510 for non-profit borrowers.  The Form 3509 can be found here, and the Form 3510 can be found here.

Kari Heinze is an associate in Walter | Haverfield’s Columbus office. She focuses her practice on business services within the healthcare and dental practice arena. Kari can be reached at or at 614-246-2266.  

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or