CLIENT ALERT: The SBA’s Loan Necessity Questionnaire Raises Concerns for Borrowers

By , Published On: February 23, 2021

In late October and early November 2020, the SBA began distributing to lenders SBA Form 3509[1] and 3510[2] (the “Loan Necessity Questionnaire”) to collect supplemental information for its review of loan forgiveness applications, in particular the certification that the borrower made as part of its loan application that economic uncertainty made the loan request necessary.[3] The questionnaire is required to be completed only by those borrowers that received a PPP loan with an original principal loan amount of $2 million or more. Borrowers that received PPP loans with an original principal amount of less than $2 million are deemed by the SBA to have made the required certification in good faith, thus, they are not required to complete the loan necessity questionnaire.[4]

The issuance of the loan necessity questionnaire has raised significant concerns among borrowers, mainly due to the extensive scope of the information requested by the SBA, and uncertainty as to how the SBA will use the information when reviewing forgiveness applications.  Some borrowers have contemplated delaying the submission of their loan forgiveness application hoping that the SBA will issue further guidance concerning the questionnaire.  While this approach is an acceptable course of action for some, borrowers should remember that they have only 10 months from the last day of their “loan forgiveness covered period” before the loan will start incurring interest.[5]

Borrowers should note that receiving a loan necessity questionnaire from your lender does not necessarily mean that the SBA is challenging your loan eligibility and certification.[6]  The SBA has stated that no one answer will automatically exclude a borrower from loan forgiveness, and each “assessment” and “determination” of a “borrower’s certification will be based on the totality of the borrower’s circumstances using a multi-factor analysis.”[7]

Because it is unlikely that the SBA will issue further guidance on the questionnaire, borrowers should make a good-faith attempt at completing the questionnaire, gathering all relevant supporting documentation.  After completing the questionnaire, borrowers then should assess any specific responses to the questionnaire that is likely to raise red flags with their lender and the SBA.  For those responses that have the potential to raise red flags, borrowers should thoroughly explain each response, providing proper rationale and necessary context.  Remember, you know your business operations better than your lender and the SBA.  Use this opportunity to educate your lender and the SBA about your operations and the economic uncertainties and hardships that you faced as a result of COVID-19.  If borrowers have any concerns that certain answers provided in the loan necessity questionnaire may be specially scrutinized by the SBA, they should contact their legal counsel to discuss the best course of action considering their circumstances.

Although many borrowers are rightfully concerned with the SBA’s “after the fact” review process concerning borrowers loan certifications, borrowers should not panic or speculate and should carefully complete the loan necessity questionnaire, providing the SBA the necessary context and supporting documentation surrounding the borrower’s economic circumstances which made the PPP loan necessary at the time they applied.

Upcoming Webinar: Please join FTLF Attorneys, Michael B. Glomb and Scott S. Sheffler as they discuss recent developments in the PPP loan program, the SBA’s loan necessity questionnaire, and the SBA’s appeals process in the unlikely event the SBA denies a borrower’s loan forgiveness application.  The webinar will take place on February 24, 2021, at 1:00 PM ET. You can learn more or register here.


[1] SBA Form 3509, Paycheck Protection Program Loan Necessity Questionnaire (For-Profit Borrowers) (“SBA Form 3509”), available at: https://home.treasury.gov/system/files/136/SBA-Form-3509-PPP-Loan-Necessity-Questionnaire-For-Profit_0.pdf (last visited, Feb. 15, 2020).

[2] SBA Form 3510, Paycheck Protection Program Loan Necessity Questionnaire (Non-Profit Borrowers) (“SBA Form 3510”), available at: https://home.treasury.gov/system/files/136/SBA-Form-3510-PPP-Loan-Necessity-Questionnaire-Non-Profit.pdf (last visited, Feb. 15, 2020).

[3] Id.

[4] Small Business Administration’s (“SBA”) Paycheck Protection Program Loans Frequently Asked Questions (“SBA FAQs”), # 46, available at: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf (last visited, Feb. 15, 2020).

[5] See SBA FAQs, # 52 (citing the Paycheck Protection Program Flexibility Act of 2020, borrowers have 10 months after the last day of its “loan forgiveness covered period” before loan payments of principal and interest are no longer deferred).

[6] SBA Form 3510; See also SBA FAQs, # 53, (providing that “[a] request to complete the Loan Necessity Questionnaire does not mean that the SBA is challenging a borrower’s certification  . . . required by the CARES Act.”).

[7] SBA FAQs, # 53; See also SBA Form 3510 (providing that the “SBA’s determination will be based on the totality of [the borrower’s] circumstances”).