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Larger PPP Loan Recipients Asked to Justify Requests, Rankling Some Businesses

  • Businesses that received Paycheck Protection Program loans of $2 million or more receive forms asking them to justify the funding
  • Forms include questions on business activities, liquidity, capital improvements, and more
  • Trade groups protest the new questionnaire, saying it was not a requirement at the outset of the program

Businesses that received larger loans under the Paycheck Protection Program have started to receive questionnaires asking them to justify the funding, prompting protests from trade groups who say the requirement could hurt companies that needed the support to endure the economic downturn caused by the COVID-19 pandemic.

The Loan Necessity form is being mailed to PPP loan recipients who received $2 million or more. It includes questions such as how much money the company had on hand at the time of the loan application, capital improvement projects, dividend payments, and compensation for employees earning $250,000 or more a year.

The SBA decided to put the loans under greater scrutiny after receiving criticism for approving loans to major restaurant chains and other large businesses. It warned applicants several months ago that companies that received $2 million or more in PPP loans would be audited, and that the loans would not be forgivable if the audit concluded that the business did not need the funds to remain in good financial condition through the pandemic.

The questionnaire must be completed and returned within 10 days. An SBA official said failure to do so would be taken as an indication that the loan request was not made in good faith.

Business and advocacy groups have complained that the Loan Necessity form was not required as part of the original PPP loan application documents, and worry that it could expose sensitive financial information of companies. More than 80 trade groups joined a letter to Congress criticizing the form as introducing a “confusing and burdensome process for both borrowers and lenders” that could lead to thousands of businesses being considered ineligible for loan forgiveness.

The groups suggested an alternative where businesses would provide a narrative statement on why the funds were needed, along with documentation to back up their claim.

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