(Last updated May 14, 2020)
Late on Wednesday, May 13, 2020, the SBA released its ninth Interim Final Rule on the Paycheck Protection Program titled “Business Loan Program Temporary Changes; Paycheck Protection Program – Loan Increases.” The latest IFR is linked here.
Section 1102 of the CARES Act initially seemed to provide that businesses could include individuals with self-employment income from the business in the PPP loan size calculations. Then, on the eve of the opening of the PPP floodgates, the SBA issued additional guidance which provided that self-employed individuals could not be included in those calculations, which caused many companies to rush to reduce their PPP loans to comply. One enormous gap created by that guidance related to the treatment of partners in a business who often are technically self-employed as they are not W-2 employees. After many applications were submitted and accepted, the SBA (on April 14, 2020) changed course and said that partners in a partnership could be included in the PPP loan application for the business.
Similarly, the SBA was late in providing guidance to seasonal employers with respect to how their loan amounts should be calculated – only providing different rules for them on April 28.
These two issues resulted in a number of businesses applying for PPP loans that were less than the appropriate maximum amount. Given that the second tranche of PPP funding still has (as of May 8th) over $120B left to fund, it seems that the SBA is again feeling generous.
The new IFR authorizes lenders to increase PPP loan amounts for previously issued loans to two groups of borrowers:
(1) Partnerships. If a partnership received a PPP loan that excluded compensation for partners from the calculation, its PPP lender may submit an electronic request through the 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.
(2) Seasonal Employers. If a seasonal employer received a PPP loan before the alternative loan calculation formula for seasonal employers was released on April 28, and the application of the updated formula would result in an increased PPP loan amount for such employer, the lender may submit an electronic request through the SBA’s E-Tran Servicing site to increase the PPP loan amount, even if the loan has been fully disbursed.
In both cases, the loan amount may only be increased if the lender’s first SBA Form 1502 report to the SBA on the applicable PPP loan has not been submitted. Once Form 1502 (a form submitted by a lender to the SBA providing payment and loan information) has been submitted, the PPP loan size cannot be increased. The SBA deadline for the submission by lenders of the Form 1502 for issued loans is currently May 22, 2020. Of course, if the increase is available to a qualifying business, the applicable borrower must provide its lender with required documentation to support the calculation of the increase.
If either of these scenarios applies to your business, our recommendation is that you reach out immediately to your PPP lender to see if the Form 1502 has been submitted for your loan. If not, then you have a small window to increase your loan amount to the maximum size available to you.