December 14, 2020

New SBA Guidance for Obtaining Loan Increases for Partnerships and Seasonal Employers

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• New guidance authorizes PPP lenders to increase existing PPP Loans to partnerships or seasonal employers.

• Act quickly – the final Form 1502 is expected soon.

On May 13, 2020, the U.S. Small Business Administration (SBA) issued another Paycheck Protection Program (PPP) interim final rule (IFR)¹ which authorizes PPP lenders to increase existing PPP Loans to partnerships or seasonal employers in accordance with the earlier April 14, 2020, IFR and April 28, 2020, IFR (collectively, “the April IFRs”).²

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Acknowledging that some PPP Loans were approved before the April IFRs were issued to clarify how partnerships and seasonal employers should calculate their loan amounts, the new IFR authorizes increases for: (1) partnerships which did not include partner income in their loan amount, and (2) seasonal employers that did not know how to use the alternative criterion for calculating their maximum loan amount.

Additionally, this new IFR provides that:

although the [April 28, 2020 IFR] requires PPP Loans to be disbursed in a single disbursement, if a PPP loan that is increased has already been disbursed, this interim final rule authorizes the lender to make an additional disbursement of the increased loan proceeds prior to submission of the initial SBA Form 1502 that includes that loan.³“

The new guidance is effective May 19, 2020 and applies to applications submitted under the PPP through June 30, 2020, or until funds are exhausted.

The April IFRs

Again, when many partnerships and seasonal employers had already been approved for PPP Loans, two April IFRs were issued providing guidance as to how partnerships and seasonal employers should arrive at their loan amounts.

The April 14, 2020, IFR clarified that a partner in a partnership was prohibited from submitting a separate PPP Loan application for him/herself as a self-employed individual. Rather, the SBA provided that general active partners’ self-employment income may be included as a payroll cost, capped at $100,000 annualized on the PPP Loan application filed by the partnership. And so, many partnerships who applied before that guidance had omitted partner self-employment income altogether—thus, failing to receive the maximum amount they were eligible to receive.

Similarly, the April 28, 2020, IFR provided an alternative criterion for calculating seasonal employers’ maximum PPP Loan amount. Many of these employers would have received higher amounts if they had known to use the alternative criterion.

The New IFR Authorizes Increases

1. Partnerships

The May 13, 2020, IFR presents in a Q&A fashion. First, it poses the inquiry: “[i]f a partnership received a PPP loan that did not include any compensation for its partners, can the loan amount be increased to include partner compensation?”⁴

The SBA answers that question in the positive, provided that: (1) the partnership received a PPP Loan that was solely comprised of amounts necessary for payroll costs attributable to the employees and eligible operating expenses, and entirely lacking an amount attributable to partner compensation, and (2) the lender’s first SBA Form 1502 report to the SBA on the PPP Loan has not already been submitted (the date for which the first SBA Form 1502 was required to be submitted has already passed).

For the partnership that qualifies, the SBA explains that the lender may electronically submit an increase request via the SBA’s E-Tran Servicing site to provide for the missing partner compensation amount. Significantly, the SBA states that the increased loan amount is not permitted to exceed the maximum amount allowed under the PPP—$10,000,000 for individuals or $20,000,000 for a corporate group.

Furthermore, the self-employment income limit applicable to general active partners remains unchanged—up to $100,000 annualized.

For more information on the calculation of partnership PPP Loan amounts, the new IFR references guidance posted on April 24, 2020: How to Calculate Maximum Loan Amounts, Question 4 at https://www.sba.gov/sites/ default/files/2020-04/How-to-Calculate- Loan-Amounts.pdf).

2. Seasonal Employers

The next question asked in the IRF is:

If a seasonal employer received a PPP loan before the alternative criterion for determining the maximum loan amount for seasonal employers became available, can the loan amount be increased based on a revised calculation using the alternative criterion?⁵“

Again, the SBA answers in the affirmative for the seasonal employer if: (1) the employer received the proceeds before the posting of the April guidance which provided the alternative criterion, and (2) the lender’s first SBA Form 1502 report to the SBA on the PPP Loan has not already been submitted (the date for which the first SBA Form 1502 was required to be submitted has already passed).

The process for making the increase request uses the same SBA E-Tran Servicing site described above in the case of a partnership. Similarly, the increased loan amount is not permitted to exceed the maximum amount allowed under the PPP—$10,000,000 for individuals or $20,000,000 for a corporate group.

3. Lender Requirements

The SBA reiterates that the April 28, 2020, IFR on disbursements and 1502 reporting posted describes the process lenders are required to follow to electronically upload SBA Form 1502 information on PPP Loans.

Additionally, the SBA noted that the April 28, 2020, instructs lenders to “submit the SBA Form 1502 information within 20 calendar days after a PPP loan is approved or, for loans approved before availability of the updated SBA Form 1502 reporting process, by May 18, 2020.”⁶ However, a subsequent May 8, 2020 IFR revised that date from May 18, 2020, to May 22, 2020.⁷ Thus, SBA Form 1502 must be submitted within 20 calendar days after approval of a PPP Loan or, for loans approved before the updated SBA Form 1502 reporting process was available, by May 22, 2020.

Conclusion

In light of this new guidance, partnerships and seasonal employers should consider whether they need to amend a current application or request an additional disbursement. We urge you to act with some urgency in this matter, especially since it appears that the SBA has still not released its final version of Form 1502.  Once that form is available to the lenders, the lenders are going to be in a hurry to submit the form—it’s how the lender receives payment for administering the loan.

If you have questions or concerns regarding requesting a PPP Loan increase, contact us at (410) 862-2890 or fill out our online form.

Footnotes

  1. IFR SBA-2020-2028 at https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Loan-Increases.pdf.
  2. IFR SBA-20202-0020 at https://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Requirements-for-Certain-Pledges-of-Loans.pdf.
  3. IFR SBA-2020-2028.
  4. Id.
  5. Id.
  6. Id.
  7. IFR SBA 2020-0024 at https://www.govinfo.gov/content/pkg/FR-2020-05-08/pdf/2020-09963.pdf.
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