By Peter de Boisblanc

PPP loans have helped hundreds of thousands of U.S. businesses weather the coronavirus pandemic. Now, the U.S. Small Business Administration (SBA) is asking business owners who received PPP loans of $2 million or more to qualify their good-faith certification of “economic uncertainty” when they request loan forgiveness.

Businesses seeking loan forgiveness must complete Form 3509, which will be used in SBA audits to determine if businesses truly faced economic uncertainty when they applied for the loan. PPP borrowers have until the maturity date of their loan to apply.

However, the SBA has not made clear what constitutes “economic uncertainty,” and loan recipients may be uncertain about their eligibility for forgiveness. Some may worry they’ll have to repay the loan in its entirety or face fines and penalties after an audit. The SBA announced that business can be subject to an audit as soon as the receive loan forgiveness request, and for the six years following forgiveness.

Filling out Form 3509

Form 3509 focuses on two areas of reporting: Business Activity and Liquidity Assessment.

The Business Activity section asks loan recipients to compare their second-quarter gross revenue in the second quarter of 2019 to the second quarter of 2020. Loan recipients need to detail ceasing operations during the pandemic, as well as document any capital improvement projects between March 2020 and the end of their loan forgiveness period.

The Liquidity Assessment asks businesses about their access to funds, equity and debt transactions, including if any of the borrower’s employees or executives were compensated in excess of $250,000 during the loan forgiveness period.

The Form 3509 requires more than just yes or no answers, and in may require the loan recipient to provide documentation for each answer.

It’s still unclear how SBA PPP loan audits will occur. However, because audits generate revenue for the government, there’s a good chance they’ll be a priority. That could mean the SBA will hire third-parties to audit the estimated 29,000 businesses with PPP loans of $2 million or more, as well as hiring additional staff and employing other audit arms within the government to assist.

PPP loan coverage can help

It’s understandable to be concerned about an SBA audit, whether your for-profit businesses continues to earn significant annual revenue, had access to additional sources of revenue when you applied for a PPP loan, or are unsure if you can prove “economic uncertainty.”

That’s where PPP loan insurance comes in.

Designed for businesses that received a $2 million-plus PPP loan that used it in good faith and asked for forgiveness, PPP loan insurance protects businesses against risks over the SBA’s six-year audit window.

A PPP loan policy will cover full and partial loan payback should it be deemed necessary, and the fines, fees and defense costs if a business is deemed it was not eligible for PPP.

PPP insurance will not cover businesses for loan fraud or if a business used the PPP loan for anything other than originally specified by the SBA. PPP loan policies may also contain exclusions for reputational damages relating to the improper receipt of a PPP loan.

To qualify for a PPP loan policy, applicants will need to provide information about the following:

  • relevant business affiliates,
  • payroll calculations made in connection with the loan application,
  • an internal analysis conducted to determine the “economic necessity” for the loan, and
  • information surrounding the impact of COVID-19 on the business.

For organizations that get coverage, a PPP loan policy can provide significant peace of mind.

Contact your HUB Broker to discuss your insurance coverage and minimize the potential negative impact of Coronavirus on your business. Get the latest information, guidance and resources on COVID-19 to help you protect what matters most on our Coronavirus Resource Center.