SBA Issues New Guidance on PPP Loan Amounts for Partnerships and Seasonal Employers

Increased Loan Amounts Granted for Borrowers

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It’s been a winding, foggy road for partnerships and seasonal employers trying to apply the Small Business Administration’s (SBA’s) guidance on Paycheck Protection Program (PPP) to their business structures.  In this article, K·Coe advisors provide a summary of the April Interim Final Rule (IFR) updates, the May loan increase IFR update, and key takeaways and actions needed for partnerships and seasonal employers to take advantage of the PPP guidance.

Interim Final Rule Updates

  • April 14, 2020 – SBA posted an IFR that included guidance for individuals with self-employment income. The interim final rule stated, “If you are a partner in a partnership, you may not submit a separate PPP loan application for yourself as a self-employed individual. Instead, the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership.”
  • April 28, 2020 – Department of the Treasury posted an IFR that provided an alternative criterion for calculating the maximum loan amount for PPP loans issued to seasonal employers.

SBA Addresses Loan Increases

On May 13, 2020, the SBA issued requirements for loan increases for partnerships or seasonal employers (under the IFR).

Lenders Authorized to Increase Existing Loans:  Some PPP loans were approved to partnerships or seasonal employers before the additional guidance was issued and, as a result, those businesses may not have received PPP loans in the maximum amount for which they are eligible. This interim final rule authorized all PPP lenders to increase existing PPP loans to partnerships or seasonal employers to include appropriate amounts to cover partner compensation in accordance with the interim final rule posted on April 14, 2020, or to permit the seasonal employer to calculate its maximum loan amount using the alternative criterion posted on April 28, 2020.

Additional Disbursements Granted:  In addition, although the IFR on disbursements posted on April 28, 2020 requires PPP loans to be disbursed in a single disbursement, if a PPP loan that is increased has already been disbursed, this IFR 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.

SBA Form 1502 is required to be submitted 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 22, 2020.

Below are the applicable Frequently Asked Questions (FAQs) the SBA guidance addressed:

1. Question: If 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?

Answer:  Yes. If a partnership received a PPP loan that only included amounts necessary for payroll costs of the partnership’s employees and other eligible operating expenses, but did not include any amount for partner compensation, the lender may electronically submit a request through SBA’s E-Tran Servicing site to increase the PPP loan amount to include appropriate partner compensation (even if the loan has been fully disbursed, provided that the lender’s first SBA Form 1502 report to SBA on the PPP loan has not been submitted).

When Loans Cannot Increase:  After the initial SBA Form 1502 report on the PPP loan has been submitted to SBA, or after the date the first SBA Form 1502 was required to be submitted to SBA, the loan cannot be increased.

Increased Loan Maximum: In no event can the increased loan amount exceed the maximum loan amount allowed under the PPP Program, which is $10 million for an individual borrower or $20 million for a corporate group. Additionally, the borrower must provide the lender with required documentation to support the calculation of the increase.

Additional Clarity:  The IFR (posted April 14, 2020) described how partnerships, rather than individual partners are eligible for a PPP loan. It explained that the self-employment income of general active partners could be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership. Guidance describing how to calculate partnership PPP loan amounts and defining the self-employment income of partners was posted on April 24, 2020.

2. Question: 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?

Answer: Yes. If a seasonal employer received a PPP loan before the alternative criterion for such employers was posted on April 28, 2020, and would be eligible for a higher maximum loan amount under the alternative criterion, the lender may electronically submit a request through SBA’s E-Tran Servicing site to increase the PPP loan amount (even if the loan has been fully disbursed, provided that the lender’s first SBA Form 1502 report to SBA on the PPP loan has not been submitted).

When Loans Cannot Increase:  After the initial SBA Form 1502 report has been submitted to SBA, or after the date the initial SBA Form 1502 report was required to be submitted to SBA, the loan cannot be increased.

Increased Loan Maximum:  In no event can the increased loan amount exceed the maximum loan amount allowed under the PPP Program, which is $10 million for an individual borrower, or $20 million for a corporate group. Additionally, the borrower must provide the lender with required documentation to support the calculation of the increase.

Key K·Coe Takeaways for Partnerships and Seasonal Employers

  1. Criteria to Request Loan Increase: As long as the bank has not filed the SBA Form 1502 to the SBA, the borrower should have the ability to go back to their original lender and request an increase in loan amount.
  2. Urgency Needed for Submission – Form 1502 Final Version Expected Soon; May 22 Deadline: Our understanding is that SBA has not yet released the final version of Form 1502 so lenders have not been able to submit the form to SBA (however, it is possible it could be released any moment).
    For those loans that the form has been outstanding more than 20 days, the lender has until May 22 to submit. Once the form is released to the lenders by SBA, the lenders are going to be motivated to submit the form, because that is how the lender gets paid for administering the loan for SBA. Therefore, the window of opportunity may be short.
  3. Hold Filing to Address Partner Compensation: For Partnership loan applications that did not include partner compensation in their original application, the borrower should immediately contact their lender to request they hold off on filing the SBA Form 1502 for their respective loan. This will allow the borrower time to evaluate, and where applicable, submit additional information to increase their loan amount.
  4. Hold Filing to Address Seasonal Payroll Computations: For seasonal employers that may benefit from the alternative criteria for computing payroll cost of seasonal employees, the borrower should immediately contact their lender to request they hold off on filing the SBA Form 1502 for their respective loan. This will allow the borrower time to evaluate, and where applicable, submit additional information to increase their loan amount.

Additional notices:  The final Form 1502 is expected to be released this week.  In addition, the PPP Safe Harbor period has been extended until May 18, 2020.  Read more about good faith certification and safe harbor here

Contact a K·Coe advisor with questions on PPP applicability.

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