On May 13, 2020, the SBA released an Interim Final Rule (IFR) on Loan Increases relating specifically to compensation of partners in a partnership. The IFR states that if a partnership received a Paycheck Protection Program (PPP) loan that didn’t include any compensation for its partners, the loan amount can be increased to include partner compensation.
The partnership guidance issued on April 14, 2020 by the Small Business Administration (SBA) that stated, “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.” Prior to this rule, many borrowers did not include the compensation of partners in their maximum loan calculation.
Some PPP loans were approved to partnerships or seasonal employers before the additional guidance was issued and, as a result, those businesses may not have received PPP loans in the maximum amount for which they are eligible.
This interim final rule authorizes 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 interim final rule posted on April 14, 2020, or to permit the seasonal employer to calculate its maximum loan amount using the alternative criterion posted on April 28, 2020.
SBA Guidance on Partnership Compensation for Paycheck Protection Program (PPP) Loans
Q: 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?
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.
What to do Next
The Interim Final Rule therefore provides that a PPP loan can be increased even if the loan has already been fully disbursed so long as the Lender’s first SBA Form 1502 report to the SBA has not been submitted. Borrowers must provide the Lender with documentation to support the calculation of the increase.
If you are interested in increasing your PPP loan under these new guidelines, you should immediately contact your Lender.
For More Information
Additional Information SBA may provide further guidance, if needed, through SBA notices that will be posted on SBA’s website at www.sba.gov. Questions on the Paycheck Protection Program may be directed to the Lender Relations Specialist in the local SBA Field Office. The local SBA Field Office may be found at https://www.sba.gov/tools/localassistance/districtoffices.