If you applied for a PPP loan before loan sizing guidance was published, we have good news. Partnerships or seasonal employers can now work with PPP lenders to increase existing PPP loans.
Key insights
- Before additional guidance was issued, partnerships and seasonal employers may have applied for loans that were less than the maximum amount for which they were eligible.
- Guidance on loan sizing for individuals with self-employment income and seasonal employees was not issued until April 14 and April 28, respectively.
- PPP lenders are now authorized to work with partnerships and seasonal employers to increase existing PPP loans based on new guidance.
- Loan increase requests must be made before the lender reports the loan amount on its Form 1502 PPP loan report, which must be submitted to the SBA the later of May 29, 2020 or 10 calendar days after disbursement or cancellation of the PPP loan.
If you think your loan amount is less than the maximum amount you are eligible for, reach out to your PPP lender. We are here to help.
The Paycheck Protection Program (PPP) got off to a rocky start due to confusion around loan sizing. From the outset of the PPP program, borrowers were permitted to request loans based on average monthly payroll, which was confusing due to the number of variables to consider. The confusion quickly intensified due to lack of timely guidance on critical issues for determining average monthly payroll, such as the treatment of self-employment income for those active in a partnership, as well as the appropriate periods to use for seasonal employers.
However, organizations that received less than the maximum allowable loan amount finally got some good news last week. An interim final rule (IFR) on loan increases was issued on May 13, 2020. This IFR authorized PPP lenders to increase existing PPP loans to partnerships and seasonal employers to include additional amounts those entities would have been eligible for had the guidance been available before their original application. Increases in the loan amount can only be requested by the lender before they report the loan amount to the SBA on Form 1502. Once the loan has been reported to the SBA by the Lender, the loan cannot be increased. The Form 1502 reporting deadline is the later of May 29, 2020 or 10 calendar days after disbursement or cancellation of the PPP loan, and lenders may report earlier, so don’t delay contacting your lender or you may miss out on this opportunity.
What caused the original PPP loans to be undersized?
Two IFRs issued in April helped clarify the determination of average monthly payroll used to size an organization’s loan.
1. Partnerships
On April 14, 2020, the Small Business Administration (SBA) provided guidance for individuals with self-employment income (85 FR 21747), stating, “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.”
Due to lack of clarity before this IFR, many applicants did not include any amounts in the average monthly payroll for general active partners who are compensated through guaranteed payments or distributions. A partnership with ten active general partners that each made over $100,000 in 2019 would result in additional loan size of $208,333.
2. Seasonal employers
The initial PPP guidance limited the period used to measure average monthly payroll to “the 12-week period beginning either February 15, 2019, or at the election of the eligible [borrower], March 1, 2019, and ending June 30, 2019.” On April 28, 2020, the 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 (85 FR 23917).
Since some seasonal employers are affected later in the year, the inability to use an alternative base period meant certain seasonal businesses were unable to obtain adequate funding under the PPP. The guidance in late April addressed this issue, by giving seasonal employers the option to use any consecutive 12-week period between May 1, 2019, and September 15, 2019, to determine their maximum loan amounts.
What should you do now?
If you are a PPP borrower whose loan size was impacted by one of these two scenarios, contact your PPP lender immediately to request an increase in your PPP loan amount. Please note that the $10 million cap for an individual borrower or $20 million cap for a corporate group still applies. You must provide the lender with the required documentation to support the calculation of the increase you are requesting.
How we can help
Whether you need help analyzing your initial PPP request or require guidance to determine the incremental loan amount for which you may be eligible, CLA can assist you. Please contact us today.