The U.S. Small Business Administration (SBA) issued a new interim final rule 5/13/2020 which allows lenders to increase existing Paycheck Protection Program (PPP) loans to partnerships and seasonal employers. An excerpt from the applicable section is provided below and the full interim final rule may be accessed here:
The ability to increase loans applies to partnerships who submitted their loans prior to April 14th because the guidance issued that date stated that the self-employment income of general active partners was now to be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by, or on behalf of, the partnership. This means that applications from partnerships made prior to April 14th were likely granted loans in amounts less than they would qualify for under the new guidance. Similarly, an interim final rule dated April 28th established an alternative criterion for calculating the maximum loan amount for PPP loans issued to seasonal employers.
The interim final rule issued 5/13/2020 allows 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 April 14th interim final rule as outlined below.
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.
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. 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.
The interim final rule posted on April 14, 2020, describes how partnerships, rather than individual partners are eligible for a PPP loan. The interim final rule further 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.
Please contact Scott Touro, MBA at firstname.lastname@example.org with any questions.