The Associated General Contractors of America (AGC) submitted a legal complaint this week against the U.S. Small Business Administration (SBA) and the U.S. Office of Management and Budget (OMB). Filed with the United States District Court for the District of Columbia, officials for AGC allege that the means by which SBA developed and deployed a Loan Necessity Questionnaire (form 3509 for for-profit businesses) violates the Administrative Procedure Act, the Paperwork Reduction Act of 1995 and the Fifth Amendment of the U.S. Constitution.

Revealed in a notice published by the Federal Register on October 26, 2020, form 3509 is designed to collect supplemental information to be used by SBA reviewers for evaluating data provided on borrower applications for the Paycheck Protection Program (PPP). Developed as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES), PPP includes guaranteed loans for eligible small businesses impacted by the COVID-19 pandemic. While SBA required applicants to certify in good faith that funds requested through PPP were necessary to support ongoing operations, AGC officials allege that by now basing its underwriting and determinations for principal forgiveness on the new questionnaire, SBA probes into circumstances post-dating original applications, rather than those preceding an expressed need.

“This contradiction is deeply troubling to many borrowers because their success or failure over the balance of 2020 could not possibly have been knowable in those early days of the pandemic when the economy was headed into a tailspin,” AGC’s filed complaint suggests.

Officials further allege that SBA is “hiding the questionnaire from public view,” after obtaining approval from OMB to release the document into circulation through a process that AGC claims failed to adhere to requirements of the Paperwork Reduction Act. The form “attempts to set a means test, a revenue reduction test and a liquidity test that Congress never contemplated,” an official AGC press release states, further alleging that OMB authorized the SBA to use its form in “complete secrecy,” instead of releasing it and providing a 60-day period for public comment. The organization is challenging the legality of the questionnaire and the legal adequacy of the process for developing, approving and publishing.

“Resorting to a secret form that disregards Congressional intent and retroactively changes the criteria for a loan is not due diligence; it is unlawful and needs to stop before employers are irrevocably harmed,” says AGC’s CEO Stephen E. Sandherr.

While purported copies of the form are placed on the internet, [DWM]’s editors were unable to locate an official version on SBA’s website. When requested through a press contact, “The form is not available to the public at this time,” confirms Martin Short, lead economic development specialist and public information officer for SBA’s Virginia-Richmond district office.

According to AGC’s legal filing, among the info requested through the questionnaire are:
• Comparisons for second quarter 2020 revenue to the same period in 2019;
• Whether any state or local shutdown orders occurred amid the pandemic;
• Info about cash outlays for business alterations due to closures since March; and
• Detailed assessments of a borrower’s financial standing since March through bank statements and other data.

“These questions are misguided. At the time of application, the borrower was asked to certify in good faith that economic uncertainty made the loan necessary at that time,” the associations legal complaint states, further suggesting that to evaluate certifications, “the focus of SBA’s inquiry must remain on the circumstances at the time of application.”

The association is asking for restricted use of the information gathered by the questionnaire, along with a declaration that it was developed and deployed unlawfully, forbidding its use for evaluating loan forgiveness or certification.