PPP “Loan Necessity” Form Causes a Stir

A questionnaire asking borrowers to justify their $2 million-plus Paycheck Protection Program loans is confusing and burdensome, says the AICPA.
Vincent RyanNovember 20, 2020

The U.S. Small Business Administration and the Treasury Department want to know more about businesses that borrowed $2 million or more in the Paycheck Protection Program (PPP). So, in early November, they started sending to lenders a new questionnaire to get more information about the operations and financial conditions of PPP borrowers during the pandemic.

But the questionnaire has stirred up controversy. More than 80 business groups, including the AICPA, sent a letter to Congressional leaders on Tuesday. It says the questionnaire “introduces a confusing and burdensome process” for both borrowers and lenders. The coalition also fears it could “lead the agencies to inappropriately question thousands of qualified PPP loans made to struggling small businesses.”

The new form, Form 3509, requests specifics on the borrower’s gross revenues, capital improvement projects, dividend payments, and compensation, including whether any employees earn more than $250,000. The completed form is due back to the lender within 10 business days of when the borrower receives it. Only businesses that borrowed $2 million or more are required to fill it out.

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“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 coalition says in its letter.

The coalition is also concerned that the new form asks for liquidity and revenue data, which it says exposes the personal finances of small business owners. “The [Coronavirus Aid, Relief, and Economic Security] 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,” reads the letter.

The Trump administration decided to review the PPP relief loans after it was revealed that large companies like Shake Shack, Ruth’s Hospitality Group, and MiMedx got PPP loans. The new form is designed to collect supplemental information that SBA loan reviewers will use in evaluating the good-faith certification borrowers made on their PPP applications that economic uncertainty made their loan request necessary.

The SBA says the reviews are “to maximize program integrity and protect taxpayer resources.”

In its letter, the business coalition recommends that instead of using the form the agencies 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.

The SBA says the reviews are “to maximize program integrity and protect taxpayer resources.”

The PPP program review comes at a time when many businesses are applying for loan forgiveness on their PPP debt. Loan recipients are eligible for forgiveness, generally, if they devoted at least 60% of the loan’s proceeds to payroll expenses.

The AICPA says the loan forgiveness applications — SBA Forms 3508, 3508EZ, and 3508S — could also be used to “…allow the agencies to examine, in greater 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.”

While there was some confusion about the deadline for loan forgiveness applications in late October, the SBA now says that borrowers may submit a loan forgiveness application any time before the maturity date of the loan. That would be either two or five years from the loan’s origination, depending on the borrower’s agreement.

Accountants that serve small businesses are also struggling with the question of whether a PPP borrower can deduct expenses related to the loan. The Internal Revenue Service said earlier in the year that while forgiveness of a PPP loan would be tax-free, the expenses would not be deductible.

New guidance from the IRS and Treasury says that if a business “reasonably believes” the loan will be forgiven in the future, costs related to the loan are not deductible.

But members of Congress are pushing a bipartisan bill, The Small Business Expense Protection Act of 2020, that would permit the deductions.

Said Erik Asgeirsson, president and CEO of, an AICPA subsidiary: “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. These ongoing changes and new requirements could impact future business decisions on applying for more relief.”

(Photo by John Tlumacki/The Boston Globe via Getty Images)