Businesses that are asked to complete SBA Form 3509 face considerable risk because many companies did better than expected financially after receiving a PPP loan, despite the initial economic hit due to the pandemic.

If the SBA ultimately determines that the PPP Borrower Application was not completed in good faith because the loan was not “necessary” for the company’s operations, the borrower could face civil or even criminal penalties.

What is SBA Form 3509?

The SBA requires for-profit borrowers to complete SBA Form 3509 if the borrower received a PPP loan of $2 million or greater. The SBA’s stated purpose of the form is to facilitate the collection of supplemental information that will be used by SBA loan reviewers to evaluate the good-faith certification that borrowers made on their PPP Borrower Application that economic uncertainty made the loan request necessary.

What Information Must You Provide?

SBA Form 3509 requests extensive information about the borrower’s finances before and after the receipt of a PPP loan, including:

  • Gross revenues for the first and second quarters of 2020
  • What business operations were altered or disrupted due to the pandemic
  • What operations were reduced due to the pandemic
  • What capital improvement projects were done
  • How much cash does the company have
  • What dividends or other capital distributions were made
  • What prepaid debt was paid
  • If any employees received over $250,000 on an annualized basis

The questions in SBA Form 3509 are focused on whether the PPP loan was necessary to support the ongoing operations of the borrower.

Why You May Need Legal Guidance

In March and April 2020, many companies across the country were faced with great economic uncertainty. It was abundantly clear in the first few weeks of the pandemic that some businesses were going to be severely negatively affected by COVID-19. But those dire predictions evolved over the next few months, and it turned out that some companies actually had a successful financial year.

For businesses that fared better than expected, SBA Form 3509 may pose a challenge. An addendum to the form may be necessary to explain why the company certified that its “current economic uncertainty” made the PPP loan request “necessary to support the ongoing operations,” when it ended up doing financially well.

A supplemental memorandum to the SBA, with the assistance of counsel, can explain the company’s thought processes and deliberations that went into preparation of the application for the PPP loan. Specific detail regarding the nature of the business, the company’s workforce, a timeline of relevant events, business activity at the time of the loan, expenses and mitigation efforts may need to be carefully outlined for the SBA. The narrative accompanying SBA Form 3509 may also need to describe how the loan application was completed in good faith and that the loan was necessary to support the company’s ongoing operations at the time, despite the ultimate financial stability of the borrower.

Such a fact-specific chronicle detailing the significant uncertainties that the company faced due to the expected operational disruptions caused by the COVID-19 pandemic may be necessary not only to ensure full forgiveness of the loan, but to demonstrate good faith and avoid potential civil and criminal liability.