Interim Final SBA Rule Gives Partnerships Ability to Increase PPP Loan Amount
The latest Interim Final Rule from the SBA addresses the question of whether individuals with an interest in an entity taxed as a partnership (e.g. a pass-through entity) are to file their own PPP Loan application or if they must report their self-employment income on the PPP Loan application of the entity.
This question was initially raised because self-employed individuals are permitted to file a PPP Loan application and, in that application, as confirmed in Interim Final Rule (85 FR 20811) published on April 15, 2020, the payroll costs will be calculated from “net earnings from self-employment.”
A subsequent Interim Final Rule (85 FR 21747) published on April 20, 2020, provided further clarity in that it confirmed that a partnership and its partners (and a limited liability company and its members) are limited to one PPP Loan as opposed to the partnership and each partner (or member) filing their own PPP Loan.
The Rule explained that this would minimize the burden on the applicants as well as the lender and would create confusion between the partner and partnership as to which entity applies for the partner or member income. Because only one PPP Loan application can be filed per entity and these Interim Final Rules were published after many partnerships and limited liability companies had already filed their PPP Loan application, the question was raised by these entities as to whether there was a way to capture the partner or member income that was not included in their original PPP Loan application.
The Interim Final Rule released May 13, 2020 answers that question. Specifically, partnerships and (while SBA does not specifically reference limited liability companies as it did in the prior Interim Final Rule) presumably, limited liability companies are provided the ability to reopen their applications for the limited purpose of adding the partner and member income (up to $100,000 annualized) to the loan amount IF that income was not originally included in the PPP Loan application.
To do so, the entity must provide the lender with the required documentation to support the calculation of the increase and the lender will process the request to increase the PPP Loan amount to include the appropriate partner or member compensation, even if the loan has already been disbursed, and so long as the lender has not already submitted its first SBA Form 1502 report to SBA.