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SBA Allows Partnerships to Upsize PPP Loans – But They Must Act Quickly

On May 14, 2020, the SBA issued its tenth Interim Final Rule (IFR 10) relating to the PPP.

Among other things, IFR 10 allows partnerships that obtained PPP loans to go back to their lenders to request an increase in the size of their PPP loans. This would be necessary if a partnership did not include the partners’ self-employment income (up to $100,000 annualized) in the determination of its loan amount because it did not believe that was permissible at the time it applied for the loan. This is the case for many partnerships because it was not until April 14 (11 days after the PPP application process opened to the public) that the SBA made it clear that partnerships can include their partners’ compensation in their loan applications and that partners cannot apply separately for PPP loans.

According to IFR 10, a partnership that did not include any compensation for its partners in its loan amount can apply to have the loan amount increased to include partner compensation. Strangely, IFR 10 then conditions the SBA’s approval of the request on a lender filing requirement with the SBA that is beyond the borrower’s knowledge and control.

Once a partnership submits a request for a loan upsize to its lender, the lender must submit the request to the SBA electronically through the SBA’s E-Tran Servicing site. But if the lender already submitted its initial SBA Form 1502 on the PPP loan to the SBA, or the date for which such form was required to be submitted has passed, then the loan size cannot be increased. But if the lender has not already submitted such form, and the date by which the lender was required to submit such form has not already passed, then the request will be granted. This is odd because the borrower has no knowledge or control over the lender’s submission of Form 1502, and two borrowers in an otherwise identical situation can be treated differently based solely on whether the lender happened to file Form 1502 with respect to each of their loans.

It therefore behooves partnerships to apply for loan upsizes as soon as possible, especially since Form 1502 is required to be submitted by lenders within 20 calendar days after a PPP loan is approved or, for loans approved before availability of the updated Form 1502 reporting process, by May 22, 2020.

If you have any questions regarding IRS 10, please contact a member of Withum’s SBA Financial Assistance Services Group.

IFR 10 does not change other rules of the PPP, so borrowers still need to document their requests for loan increases with the required documentation, they are still limited to a maximum loan size of $10 million, and individual partner compensation is still limited to $100,000 on an annualized basis.

Overall, IFR 10 provides welcome news for all businesses that operate in partnership form, including law firms, engineering firms, medical practices, and other businesses. They can now attempt to upsize their loans provided they act quickly and the lender has not already submitted Form 1502 to the SBA or the date by which such form was required to be submitted has not already passed.

SBA Financial Assistance Services

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