Extension on PPP Loan Repayment, New Safe Harbor and Partnership Guidance
U.S. Treasury and the SBA issued additional clarity around good faith certification of PPP loan necessity and also finalized rules on increasing PPP loan amounts to partnerships and seasonal employers.
The U.S. Treasury Department and SBA extended to May 18, 2020, the deadline for companies to repay their PPP loans in full if they believe that they do not need the funds to cover adverse conditions from the COVID-19 pandemic. The date was extended to give applicants time to consider new Interim Final Rule clarification.
In new FAQs #46 and #47 (page 16), the U.S. Treasury and SBA have clarified the Interim Final Rules that “all borrowers must certify in good faith that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’”
In FAQ #46, the SBA, “in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.
Question #47 provides an automatic extension of the safe harbor repayment deadline. It states that the SBA is extending the repayment date for this safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor.
The SBA reiterated in its new guidance that recipients of loans greater than $2 million will face closer review during the loan forgiveness process and possibly face penalties and referrals to other regulatory agencies if the loan is ultimately deemed unnecessary under PPP program guidelines. They offer a final option to such borrowers of immediately paying the loan in full in order for borrowers to avoid administrative enforcement and referrals.
Keep in mind that all businesses and organizations that receive a PPP loan should still document 75% or more of funds used for payroll as part of the loan forgiveness process. Specific guidance on the application for loan forgiveness is still pending from the SBA, so talk to your CPA at DS+B to support clear documentation during the eight-week covered period.
Loan Increase Option for Partnerships and Seasonal Employers
A new Interim Final Rule was also published May 13, 2020, relating to partnerships and seasonal employers. The April 14, 2020, Interim Rule prohibited partners in partnerships from submitting a separate PPP loan application for themselves as self-employed individuals. Instead, the self-employment income of general active partners was to be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by, or on behalf of, the partnership.
The April 14, 2020, ruling meant that partnerships that had already submitted PPP applications without including partner self-employment income likely did not receive the maximum amount of PPP loans for which they were eligible. The situation for some partnerships was further complicated through an Interim Final Rule dated April 24 and April 28, 2020, which established an alternative criterion for calculating the maximum loan amount for PPP loans — relating to partnerships and seasonal employers, respectively.
With this newest Interim Final Rule, PPP lenders may be able to increase existing PPP loans to partnerships or seasonal employers. For partnerships, they can cover partner compensation in accordance with the April 24 interim final rule. And they can permit the seasonal employer to calculate a maximum loan amount using the alternative criterion posted on April 28. Some partnerships, such as accounting firms, are also seasonal employers.
In addition, although the interim final rule on disbursements posted on April 28 requires PPP loans to be made in a single disbursement, if a PPP loan that is increased has already been disbursed, this interim final rule authorizes the lender to make an additional disbursement of the increased loan proceeds prior to submission of the initial SBA Form 1502 that includes that loan. However, there are certain limitations on increasing PPP loan amounts based on whether or not SBA Form 1502 has already been filed. Talk to your lender about such limitations that may apply to your situation.
If you have not yet applied for a PPP loan or would like to reapply for additional funds, there is still time to do so through the end of the program on June 30, 2020, (or sooner if current available funds are exhausted).