The U.S. Small Business Administration (SBA) recently released procedural guidance on the procedures for reapplying or requesting an increase for a first-draw Paycheck Protection Program (PPP). The reapplication process could be due to allowable expenses that were not included in the original application.
The procedural notice applies primarily to first-draw PPP loans approved by August 8, 2020, which is when the first iteration of the program stopped accepting applications. The guidance does not apply to second-draw PPP loans (i.e., second PPP loans obtained by previous PPP borrowers), which are not eligible for increases or reapplications, or to first-draw loans for which forgiveness payments have already been remitted by the SBA.
Requirements to reapply for a PPP loan or request a loan increase
If a partnership received a first-draw PPP loan that covered payroll costs of the partnership’s employees and other eligible expenses, but did not include any amount for partner compensation, the lender may electronically submit a request through the SBA’s E-Tran Servicing site (E-Tran) to increase the loan amount to include appropriate partner compensation, even if the loan has been fully disbursed and the lender’s first Form 1502 report has already been submitted.
The amount of the increase may not exceed the maximum loan amount to which the borrower is entitled under PPP rules, and in no event can the increased loan amount exceed the maximum PPP loan amount ($10 million for an individual borrower or $20 million for a corporate group). Additionally, the borrower must provide the lender with all required documentation to support the calculation of the increase to include partner compensation.
The lender must submit any request for an increase electronically in E-Tran no later than March 31 and is subject to the availability of funds.
Section 336 of the Economic Aid Act revised the method by which a seasonal employer may determine its maximum PPP loan amount. Seasonal employers are now allowed to use the average total monthly payments for payroll for any 12-week period the employer selects between Feb. 15, 2019, and Feb. 15, 2020. Seasonal employers that received a first-draw PPP loan may be eligible for a loan increase if application of the methodology in Section 336 results in the calculation of a higher loan amount.
In that scenario, the lender may electronically submit a request through E-Tran to increase the loan, provided it does not exceed the applicable maximum PPP loan amounts.
Farmers and ranchers
Section 313 of the Economic Aid Act changed the calculation of the maximum loan amount for certain farmers and ranchers. If an eligible farmer or rancher received a first-draw PPP loan and would be eligible for a higher maximum loan amount based on the formula described in subsection B.4.d. of the consolidated IFR, the lender of record may electronically submit a request through E-Tran to increase the loan amount, again subject to the loan maximum and documentation requirements.
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.