What Partnerships and Seasonal Employers Need to Know About Requesting Additional PPP Loan AmountsAnchin AlertMay 15, 2020
Anchin’s COVID-19 Resource Team continues to monitor ongoing updates to the PPP Program. Borrowers need to understand how these changes and clarifications may affect their application, loans and forgiveness. Here are new updates related to partnerships and seasonal employers.
Effective May 13, 2020, the SBA issued a new Interim Final Rule (IFR) entitled, Requirements for Loan Increases for Partnerships or Seasonal Employers. This IFR allows lenders to increase an existing PPP loans to a partnership (including an LLC and LLP taxed as a partnership) by including appropriate amounts to cover partner compensation that were not included in that partnership’s first loan application. It also permits a seasonal employer to increase their loan amounts based on the alternative criterion posted in an IFR by the SBA on April 28, 2020, if the seasonal employer received a PPP loan before April 28, 2020.
Partnerships May Be Eligible for Increased PPP Loans
If a partnership received an initial PPP loan based only on 2.5 months of payroll costs of the partnership’s employees, but did not include any amount for partner compensation, the partnership may submit a request to its lender for an increase to the PPP loan to include the appropriate amount of partner compensation, even if the initial loan has already been fully disbursed. This additional loan based on the partners’ self-employment income is permitted only if the lender’s first SBA Form 1502 report to the SBA on the PPP loan has not been submitted. After the initial SBA Form 1502 report on the PPP loan has been submitted to the SBA, or after the date the first SBA Form 1502 was required to be submitted to the SBA, the loan cannot be increased. If your business is a partnership, we recommend that you reach out to your lender if you are interested in applying for an additional PPP loan based on your partners’ self-employment income.
Calculating the Additional Loan and Loan Limitations for Partnerships
A PPP loan is calculated based on a borrower’s average monthly “Payroll Costs” multiplied by 2.5. For a partner in a partnership, “Payroll Costs” are based on the self-employment income of each general active partner and is limited to $100,000 annualized (if a partner’s income is greater than $100,000, additional loan proceeds associated with that partner will be limited to $20,833 = $100,000 x 2.5/12). In no event can the increased loan amount exceed the maximum loan amount allowed under the PPP, which is $10 million for one partnership or $20 million for an affiliated group. The borrower must provide the lender with documentation to support the calculation of the increased loan amount.
Seasonal Employers May Be Eligible for Increased PPP Loans
If a seasonal employer received a PPP loan before the alternative criterion for such employers was posted on April 28, 2020, and would be eligible for a higher maximum loan amount under the alternative criterion, the borrower may submit a request for an increase to the PPP loan amount, even if the initial loan has already been fully disbursed. The same restriction applies regarding the lender’s filing of SBA Form 1502 described above for partnerships.
Calculating the Additional Loan and Loan Limitations for Seasonal Employers
The CARES Act initially permitted a seasonal employer to calculate their PPP loan based on 2.5 times their average monthly payroll during the period from February 15, 2019 (or March 1, 2019) to June 30, 2019. The IFR issued by the SBA on April 28, 2020 permits seasonal employers to calculate their average monthly payroll on any consecutive 12-week period between May 1, 2019 and September 15, 2019. According to the newly issued IFR on May 13, 2020, seasonal employers can request additional PPP loan amounts if the alternative calculation yields a higher amount than their original PPP loan amount.
In no event can the increased loan amount exceed the maximum loan amount allowed under the PPP, which is $10 million for one seasonal employer or $20 million for an affiliated group. The borrower must provide the lender with documentation to support the calculation of the increased loan amount.
Anchin Observation: What this IFR Did not Address
If additional funding is provided to a partnership or seasonal employer as a result of this new guidance, this IFR does not address whether (i) the additional loan amount will be due at the same time as the initial PPP loan, (ii) the initial PPP loan will be extended to the same due date as the new funding, or (iii) the initial funding and new funding will have two distinct maturity dates. Further, this IFR does not address the impact that two distinct funding dates would have on the 8-week benefit period for the loan forgiveness calculation. Like many other loan forgiveness issues, this too will likely be determined at some future date.
The Anchin COVID-19 Resource Team continues to monitor ongoing updates to the PPP Program. To better understand how the changes impact your PPP Loan please contact your Anchin Relationship Partner or our Anchin COVID-19 Resource Team at COVID19@anchin.com.
See the following link for more guidance on this Interim Final Rule:
Disclaimer: Please note this is based on the information that is currently available and is subject to change.