SBA Announces Changes in PPP Loan Forgiveness Process


Alexander H. Pyle | August 5, 2021

SBA Eliminates Loan Necessity Questionnaire for Loans over $2 Million

The Small Business Administration recently announced that Paycheck Protection Program (“PPP”) loan borrowers will no longer need to submit a Loan Necessity Questionnaire as part of their forgiveness application. This is a notable development given the shifting need certification standard of the PPP program. Initially, in order to receive a PPP loan, an applicant was required to make a good faith certification that the pandemic’s uncertain economic conditions necessitated a PPP loan. Then, in October 2020, after borrowers already received loan disbursements based on the “good faith” certification, the SBA issued guidance that appeared to alter that standard by seeking to assess a borrower’s business operations and liquidity. Specifically, the SBA required borrowers that received PPP loans in excess of $2 million to certify their needs for PPP loans via SBA Form 3509 (Loan Necessity Questionnaire for For-Profit Borrowers) and SBA Form 3510 (Loan Necessity Questionnaire for Non-Profit Borrowers). The additional information contemplated by these questionnaires included:

  • Borrower’s gross revenue in the second calendar quarter of 2020;
  • Whether the borrower has been ordered to shut down or significantly alter operations by a state or local authority due to COVID-19;
  • Related cash outlays to these shutdowns or alterations;
  • Any voluntary cessation or alteration of operations;
  • Information pertaining any affiliates or subsidiaries;
  • Whether any employees were compensated by borrower in an amount exceeding $250,000 during the loan forgiveness period; and
  • Whether the borrower received any other funds from other CARES Act programs.

The SBA stated that it was eliminating the questionnaire requirement because the loan necessity review process, including the review of Loan Necessity Questionnaires, has been lengthy and has caused delays beyond the 90-day statutory timeline for forgiveness, which has negatively impacted borrowers that made their loan necessity certification in good faith.

Direct SBA Processing of Many Loan Forgiveness Applications

In a separate action, the SBA has also issued an interim final rule announcing a direct borrower forgiveness process for smaller PPP loans. The process will allow PPP lenders to elect to have forgiveness applications for loans of $150,000 or less submitted directly to the SBA’s online portal, rather than being processed through the lender’s systems and then submitted to the SBA.

If a PPP lender opts into the direct forgiveness process, borrowers with loans of $150,000 or less will be able apply for loan forgiveness through the SBA’s platform using the electronic equivalent of SBA Form 3508S. The lender will receive notice of the borrower’s application, and be able to review and issue a decision on the loan forgiveness application inside the platform.

The SBA believes that this direct application process will benefit both lenders, with reduced costs, increased efficiency, and more timely forgiveness payments from the SBA, and also borrowers, by reducing the waiting time and uncertainty associated with submission through their lenders.

The SBA will be issuing more detailed procedural guidance regarding the direct forgiveness application process in the near future. In the meantime, lenders will continue to process previously submitted forgiveness applications, and borrowers should not submit a duplicate loan forgiveness application through the SBA’s platform.