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Interim Final Rule 5.13.20 and Safe Harbor Extension

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CLIENT UPDATE: On May 13, 2020, Treasury issued an interim final rule permitting certain PPP loan increases with respect to partnerships and seasonal employers.

For background, Treasury issued interim final rules in April 2020 that increased the potential maximum PPP loan amounts for partnerships and seasonal employers. In particular, on April 14, 2020, an interim final rule provided that 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.” As to seasonal employers, an interim final rule issued on April 28, 2020 provided an alternative criterion for calculating the maximum loan amount for PPP loans issued to seasonal employers. Both of these rules were described in prior Wadleigh client updates.

However, because some PPP loans were approved with respect to partnerships and seasonal employers before this April guidance was issued, those businesses may not have received PPP loans in the maximum amount for which they were eligible. The new rule announced yesterday is intended to allow for an increase of existing PPP loans to such businesses. 

The new rule provides that if a partnership received a PPP loan that only included amounts necessary for payroll costs of the partnership’s employees (and other eligible expenses), but did not include any amount for partner compensation, the lender may submit a request to increase the PPP loan amount to include appropriate partner compensation, even if the loan has been fully disbursed. In other words, if a partnership received a PPP loan that did not include any compensation for its partners, the PPP loan amount can now be increased to include partner compensation.

As for seasonal employers that received a PPP loan prior to the issuance of the alternative criteria guidance noted above, those employers may now take advantage of that alternative criteria, and, thus, they may be eligible for an increased PPP loan amount based on a revised calculation using the alternative criteria.   

For both partnerships and seasonal employers: (1) any request for increased PPP loan amounts must be made prior to the lender’s submission of the first SBA Form 1502 (which was due twenty days following the approval of the PPP Loan, though because the form was released later than expected by SBA, could be due as late as May 22, 2020); (2) the increased loan amount cannot exceed the maximum loan amount for a PPP loan; and (3) the borrower must provide the lender with required documentation to support the calculated increase.

Importantly, if a borrower’s PPP loan has already been fully disbursed, the lender can make an additional disbursement for the increased proceeds (so long as the requirements above are also met). Lenders must still comply with the SBA Form 1502 reporting deadlines; increases submitted outside of the required timeframe will not be forgiven and will not be eligible for processing fees.

The full text of the rule can be found here: https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Loan-Increases.pdf

Additionally, as provided in the Answer to Question 47 in its FAQ publication, Treasury has extended the safe harbor repayment date from May 14 to May 18, 2020, thereby providing additional time for otherwise ineligible PPP loan recipients to pay back the full amount of the loan and be deemed to have made the required certification concerning the necessity of the loan request in good faith. The FAQ publication can be found here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

Wadleigh’s COVID-19 Response Team will continue to monitor this situation closely and provide updates as the situation develops.