Letters signed by AICPA raise concerns about PPP Loan Necessity Questionnaires

The AICPA is among 82 organizations that have signed onto a pair of letters expressing concerns about the new Paycheck Protection Program Loan Necessity Questionnaires, which require PPP borrowers with loans of $2 million or more to complete a new form and provide extensive documentation supporting their request for relief funds.

In the two letters, which were sent to congressional leaders and to Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza, the AICPA and other signatories recommend that the agencies temporarily suspend the use of the questionnaires (SBA Forms 3509 and 3510) while working with the group to “collectively address these issues and work together toward a better solution.”

The coalition, which represents millions of American workers and small businesses, suggested that the existing PPP Forgiveness Applications — specifically, SBA Forms 3508, 3508EZ, and 3508S — should continue to be used because they allow “the agencies to examine, in great detail and prior to the approval of loan forgiveness, relevant facts to ensure that the PPP loan funds were used in the way Congress intended.”

The organizations also recommended that if the agencies need more information about the necessity or suitability of a PPP loan that they require the borrower to provide a narrative statement and any documentation the borrower believes is appropriate to demonstrate that the loan was critical to support its ongoing operations.

“We strongly believe that the vast majority of small businesses needed their PPP loan to stay in business and retain employees, and many still need additional financial support,” Erik Asgeirsson, president and CEO of CPA.com, the AICPA’s business subsidiary, said in a news release. “These ongoing changes and new requirements could impact future business decisions on applying for additional relief.”

In the letters, the AICPA and other signatories identified policy and operational concerns about the new forms, including the following:

• The questionnaires focus on the wrong time frame during which the PPP loan must be assessed. They seek gross revenue comparisons between the second quarter of 2020 and the second quarter of 2019 and other metrics and narratives that describe how the borrower has fared during the pandemic. However, borrowers were required to certify in good faith that the loan was needed at the time of the request. “Any circumstances that happened after the certification was made and throughout the pandemic should have no bearing on evaluating the borrower’s good faith statement at the time it made the certification,” the letters say.
• The new forms ask for liquidity and revenue data, which could expose the personal finances of small business owners. The letter states that “[t]he CARES Act did not include a means-based test, revenue reduction test, liquidity test, or any other metric to assess financial standing in order to assign prioritization of PPP loans to certain borrowers over others.”
• Questions about revenue and liquidity data signal a bias against PPP borrowers who survived or remain profitable during the pandemic. Steady or increased revenue with healthy liquidity and continuing employment is a sign that the PPP loan was successful.
• Other questions raise concern that a borrower’s answer may lead to a misinformed analysis by the agencies; for example, requests for statements on whether closures or changes in operations were mandatory or voluntary and details on which governmental jurisdiction mandated the closures.
• The questionnaires apply impractical compliance deadlines on borrowers and lenders that would be impossible in many cases. “The nine-page questionnaire demands a level and type of reporting never previously required from borrowers by statute or in any process in PPP lending thus far,” the letters say.

More than 5.2 million PPP loans totaling $525 billion were approved during the five months the program was accepting applications for assistance. About 30,000 of the loans were for $2 million or more, according to SBA reporting.

The PPP in brief

Congress created the PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The legislation authorized Treasury to use the SBA’s 7(a) small business lending program to fund forgivable loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.

PPP borrowers can qualify to have the loans forgiven if the proceeds are used to pay certain eligible costs.

The program stopped accepting applications on Aug. 8 with almost $134 billion of congressionally approved funds remaining unspent. Allowing certain small businesses to access those funds is among several PPP proposals that have been discussed between Congress and the White House, but nothing has been passed, as no agreement has been achieved on a comprehensive COVID-19–related stimulus bill during a contentious election year.

Congress designed the forgivable loans to help support organizations facing economic hardships created by the coronavirus pandemic and assist them in continuing to pay employee salaries. PPP loan recipients can have their loans forgiven in full if the funds are used for eligible expenses and other criteria are met. The amount of the loan forgiveness may be reduced based on the percentage of eligible costs attributed to nonpayroll costs, any decrease in employee headcount, and decreases in salaries or wages per employee.

AICPA experts discuss the latest on the PPP and other small business aid programs during a biweekly virtual town hall. The webcasts, which provide CPE credit, are free to AICPA members. Go to the AICPA Town Hall Series webpage for more information and to register.

The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.

— Jeff Drew (Jeff.Drew@aicpa-cima.com) is a JofA senior editor.