The Small Business Administration (SBA) has published a loan necessity questionnaire for for-profit and non-profit borrowers. The questionnaire has not been officially published on the SBA or U.S. Treasury websites, but it has been reported that borrowers (together with their affiliates) with PPP loans of $2 million or greater have started to receive the questionnaires.

The questionnaire requests information to confirm the economic necessity certification that borrowers made when applying for the PPP loan program. Example requests include the cash and cash equivalents the borrower had on hand as of the last day of the calendar quarter immediately before the date of the PPP application, whether the borrower has made any dividends or capital distributions (other than for pass-through estimated tax payments), and whether the PPP borrower has prepaid any outstanding debt during the covered loan forgiveness period.

In addition, the SBA inquires about highly compensated individuals, whether any of the borrower’s equity securities were listed on a national exchange, and if not listed on a national exchange, the book value of equity and whether 20% or more of the borrower was owned by a private equity firm, venture capital firm or hedge fund.

Some of the requested liquidity information, such as the equity ownership and cash on hand/other sources of liquidity could have been expected by PPP borrowers as access to liquidity was one of the only criteria the SBA had previously provided with respect to the economic need certification. The additional liquidity information, such as the compensation and distribution questions, may be a surprise to PPP borrowers as these items were part of other CARES Act lending programs, such as the Treasury direct loans and Main Street Lending Program, but have not been previously mentioned for PPP.

Also on the loan necessity questionnaire is a business activity assessment. In this section, the SBA requests information with respect to a borrower’s gross receipts, whether the entity has been required to shut down as a result of covid-19, whether business operations have been affected by covid-19 and whether the borrower has undertaken any capital improvements not due to covid-19.

Borrowers with PPP loans of $2 million or greater should immediately review the applicable draft questionnaire and start to gather any information required. The SBA provides borrowers 10 business days to return the requested information to the PPP lender so the more information borrowers have ready to go the better.

Overall, the additional questionnaire is not surprising as the SBA has previously indicated it would be reviewing loans of $2 million or greater prior to making a determination on loan forgiveness. However, the volume and specificity of requested information may strike some borrowers as onerous and not in line with what was understood to be the original conditions of PPP. As we’ve seen before though, PPP is an evolving program and guidance can change with little notice.