Late on Wednesday, May 13, 2020, the SBA released its Ninth Interim Final Rule on the Paycheck Protection Program titled “Temporary Changes to the Business Loan Program; Paycheque Protection Program – Loan Increase. The last IFR is linked here.
Article 1102 of the CARES Act initially appeared to provide that companies could include persons with self-employment income from the company in the calculations of the amount of PPP loans. Then, on the eve of the PPP floodgates, the SBA issued additional guidance that stated that self-employed workers could not be included in these calculations, prompting many companies to rush to reduce their loans. PPP to comply. A huge loophole created by these guidelines concerned the treatment of partners in a business who are often technically self-employed because they are not W-2 employees. After many applications were submitted and accepted, the SBA (April 14, 2020) changed course and said that partners in a partnership could be included in the PPP loan application for the business.
Likewise, the SBA has been slow to provide advice to seasonal employers on how their loan amounts should be calculated – not providing them with different rules until April 28.
These two issues have led a number of companies to apply for PPP loans below the appropriate maximum amount. With the second round of PPP funding still (as of May 8) over $ 120 billion to fund, it looks like the SBA is feeling generous again.
The new IFR allows lenders to increase PPP loan amounts for loans previously issued to two groups of borrowers:
(1) Partnerships. If a partnership received a PPP loan that excluded partner compensation from the calculation, its PPP lender can submit an electronic request through the SBA’s E-Tran Servicing site to increase the PPP loan amount to include appropriate compensation for the partner, even if the loan has been fully disbursed.
(2) Seasonal employers. If a seasonal employer received a PPP loan before the release of the Alternative Loan Calculation Formula for Seasonal Employers on April 28 and applying the updated formula would result in an increase in the PPP loan amount for that employer, the lender can 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 either case, the loan amount can 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 amount cannot be increased. The SBA deadline for submission by lenders of Form 1502 for issued loans is currently May 22, 2020. Of course, if the increase is available for an eligible business, the affected borrower must provide their lender with the documentation required to support the increase calculation.
If any of these scenarios apply to your business, we recommend that you immediately contact your PPP lender to see if Form 1502 has been submitted for your loan. If not, you have a small window to increase your loan amount to the maximum size you have available.