By: Mark A. Mangano
For Paycheck Protection Program (PPP) loans not yet reported by the lender on Small Business Administration (SBA) Form 1502, certain borrowers may apply to increase the amount of their initial loan. Partnerships that applied for a PPP loan under the rules applied prior to April 28, 2020 and seasonal employers that applied for a PPP loan under the rules applied prior to April 14, 2020 may be eligible to increase their loans to maximum amounts consistent with current SBA rules. However, the window for applying for a loan increase is very limited.
On May 13, 2020, the Treasury Department issued its tenth interim final rule regarding the Paycheck Protection Program “Business Loan Program Temporary Changes; Paycheck Protection Program-Loan Increases” (Tenth IFR).1 The Tenth IFR creates limited exceptions to the rule that “The lender must make a one-time, full disbursement of the PPP loan within ten calendar days of loan approval…”2 The Tenth IFR seeks to provide more consistent application of current maximum loan amount rules to all partnerships and seasonal employers.
Partnerships
On April 14, 2020, the SBA issued an interim final rule that describes how partnerships, rather than individual partners are eligible for a PPP loan. Under the rule, 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.3 Partnerships that applied for PPP loans before April 14, 2020 may not have included self-employment income in calculating the maximum allowable PPP loan amount.
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 submit a request to increase the PPP loan amount to include appropriate partner compensation, even though the loan has been fully disbursed.
Seasonal employers
On April 28, 2020, the SBA issued an interim final rule that provides an alternative criterion for calculating the maximum loan amount for PPP loans issued to seasonal employers.4 Seasonal employers that applied for a PPP loan before April 28, 2020 may have been eligible for a greater maximum PPP loan amount under the April 28, 2020 rule.
SBA Form 1502 submission limit
On April 28, 2020, the SBA published a rule regarding the process for reporting PPP loans on Form 1502. As of April 28, 2020, lenders are required to submit a Form 1502 report on approved PPP loans within 20 calendar days after a PPP loan’s approval. For loans approved before April 28, 2020, the approval must be reported by May 22, 2020.
For borrowers to be eligible for a PPP loan increase, the lender must submit the request for increase before:
- The lender has reported the initial loan on a Form 1502 report submitted to the SBA, or
- The lender was required to report the initial loan on Form 1502.
No increases will be permitted for loans that have already been reported on a Form 1502 submission.
Partnerships and seasonal employers with PPP loans funded at less than the maximum amount currently authorized should consult with their lenders immediately to determine if a loan amount increase is an option.
1 https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Loan-Increases.pdf
2 85 FR 26321; https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Disbursements.pdf
3 85 FR 21747; https://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Requirements-for-Certain-Pledges-of-Loans.pdf
4 85 FR 26321; https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Disbursements.pdf