New regulations issued May 13, 2020 allow qualified partnerships and businesses with seasonal workers to seek an increase in Payroll Protection Act (PPP) Loan funds.
Why the change?
There was a lot of confusion over how to calculate PPP loan amounts for various types of businesses, and some folks, in the rush to apply early, were approved for smaller loans than they qualified for under guidance issued on April 14 for workers with self-employment income, such as partners in general partnerships (85 FR 21747) and similarly on April 28, 2020 issued further guidance for calculating maximum loan amounts for companies with seasonal employees (85 FR 23917). Where originally businesses were required to take one loan only, and take those funds in a single disbursement made within 10 days of approval, this new regulation allows that the bank may amend the loan amount to meet the new criteria, and make a single additional disbursement to the revised amount.
But there’s a catch! Act fast
In order to earn their origination fee, the banks are required to make a monthly report to the SBA on a form called the SBA Form 1502 within 20 days of the loan approval, with the first report of the program due on May 18, 2020 for loans originated prior to April 28, 2020. There is a very short window to request an increased disbursement, because the increases must be requested and approved prior to the bank reporting your loan on a Form 1502. If they grant you an increase after your loan has been reported, the bank is not entitled to an origination fee, and you are not entitled to forgiveness for the additional amount. Which means, practically, that banks probably won’t grant you an increased loan.
Do I qualify for an increased loan?
If you are not a seasonal business or partnership, the answer is no. But if you are a seasonal business or partnership, they answer depends on how you calculated your loan amount (ie, your “average monthly payroll,” which was then multiplied by 2.5 to come up with your loan amount).
For a Partnership: Individual partners cannot take their own PPP loans, but SBA clarified that partner compensation up to $100K per partner may be included in the PPP loan amount, and therefore also forgiven.
For Seasonal Employers: The original rules required a seasonal employer to calculate the average monthly payroll using specified dates. The revised rule allows the employer to choose any consecutive 12 week period within the 4 month period of May 1, 2019 and September 15, 2019 to calculate the average monthly payroll, and thus loan amount. But note: if you use your summer numbers to calculate the loan, but get your PPP money before the height of your season, you may not be in a position to retain workers and spend it all within the 8 week period after funding. So think through your options carefully.
What about loan forgiveness?
Now that many folks have been funded with PPP loans, the next frontier is spending that money wisely to maximize forgiveness. We’re hearing from business owners that they have now gotten their PPP funds, but are afraid to spend them. Questions include:
To answer these common questions and more, we’re hosting a one hour webinar on Friday May 15 at 3pm. You MUST register in advance to attend, using this link or by clicking the registration button below. And when you do, let us know what YOUR biggest concern is: We want to be able to have a fully researched answer.