By Cary Zimmerman & Demetrius Robinson

“Missing” Partnership Compensation

On Wednesday, May 13, 2020 the Small Business Administration (SBA) published a new interim final rule to clarify that any borrower that received a Paycheck Protection Program (PPP) loan pursuant to an application that was submitted prior to an April 14, 2020 interim final rule – which addressed that partner compensation should be included in the calculation of the loan amount – may request from their lender an increase in the loan amount that takes into account any previously “missing” partner compensation (capped at $100,000 annualized). Of course, sufficient documentation supporting the compensation driving the increase must still be submitted, and the aggregate available loan amount is still limited to $10 million for an individual borrower or $20 million for a corporate group.

The new rule authorizes the PPP lender to submit an increase request through the E-Tran Servicing site even if the loan has already been disbursed, so long as the lender’s first Form 1502 report to SBA on the PPP loan has not been submitted. However, importantly, if Form 1502 already has been submitted or the deadline for submission of that form has passed, the loan cannot be increased.

For loans approved prior to issuance of the April 28 interim final rule, the Form 1502 deadline is May 22, 2020, and for loans approved after that rule was published, the deadline is 20 days after loan approval. A borrower’s ability to increase its loan, then, depends heavily on timing and the lender’s actual submission of Form 1502 and its compliance with the submission deadline.

Seasonal Employers

Further, the SBA interim final rule provides additional guidance to seasonal employers who submitted applications before April 28, 2020. On April 28, 2020, the Treasury Department issued an alternative criterion for calculating the maximum PPP loan amount for seasonal employers. Under the SBA interim final rule, a seasonal employer who submitted their application prior to April 28, 2020, may recalculate their maximum loan amount using the alternative criterion and if such calculation results in a higher maximum loan amount, then the seasonal employer may submit an “updated” application with their lender.

The interim final rule provides an exception to a lender who resubmits for additional funding based upon this updated guidance. Therefore, a lender may submit an increase request through the E-Tran Servicing site even if the loan has already previously disbursed, so long as the lender’s first lender’s first Form 1502 report to SBA on the PPP loan has not been submitted. However, importantly, if Form 1502 has already been submitted or the deadline for submission of that form has passed, the loan cannot be increased.

For loans approved prior to issuance of the April 28 interim final rule, the Form 1502 deadline is May 22, 2020, and for loans approved after that rule was published, the deadline is 20 days after loan approval. A borrower’s ability to increase its loan, then, depends heavily on timing and the lender’s actual submission of Form 1502 and its compliance with the submission deadline.

If you have questions or would like to discuss further, please reach out to Cary Zimmerman (caz@kjk.com; 216.736.7275) or Demetrius Robinson (drj@kjk.com; 614.427.5749).