Safe Harbor Deadline Extended for Returning PPP Funds

May 14, 2020

Last night, the Treasury released FAQ 47 in the Frequently Asked Questions under Program Rules that extends the safe harbor deadline for returning PPP funds to May 18th. This safe harbor was put into place to allow borrowers not meeting the certification requirements the opportunity to repay their PPP loan.  Please see in detail below:

47. Question: An SBA interim final rule posted on May 8, 2020, provided that any borrower who applied for a PPP loan and repays the loan in full by May 14, 2020, will be deemed by SBA to have made the required certification concerning the necessity of the loan request in good faith. Is it possible for a borrower to obtain an extension of the May 14, 2020 repayment date?
Answer: Yes, 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.
Click here to read the fully updated frequently asked questions on the SBA PPP program rules.

Additionally, the SBA released Interim Final Rule on Loan Increases that enables borrowers to increase their loan amounts if their original loan application was based on certain prior assumptions. Please see in detail below:

1. Loan Increases 
a. If a partnership received a PPP loan that did not include any compensation for its partners, can the loan amount be increased to include partner compensation?

Yes. If a partnership received a PPP loan that only included amounts necessary for payroll costs of the partnership’s employees and other eligible operating expenses but did not include any amount for partner compensation,2 the lender may electronically submit a request through SBA’s E-Tran Servicing site to increase the PPP loan amount to include appropriate partner compensation, even if the loan has been fully disbursed, provided that the lender’s first SBA Form 1502 report to SBA on the PPP loan has not been submitted. After the initial SBA Form 1502 report on the PPP loan has been submitted to SBA, or after the date the first SBA Form 1502 was required to be submitted to SBA, the loan cannot be increased. In no event can the increased loan amount exceed the maximum loan amount allowed under the PPP Program, which is $10 million for an individual borrower or $20 million for a corporate group. Additionally, the borrower must provide the lender with the required documentation to support the calculation of the increase.

The interim final rule posted on April 14, 2020, describes how partnerships, rather than individual partners are eligible for a PPP loan. The interim final rule further explained that the self-employment income of general active partners could be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership. Guidance describing how to calculate partnership PPP loan amounts and defining the self-employment income of partners was posted on April 24, 2020 (see How to Calculate Maximum Loan Amounts, Question 4).

b. If a seasonal employer received a PPP loan before the alternative criterion for determining the maximum loan amount for seasonal employers became available, can the loan amount be increased based on a revised calculation using the alternative criterion?

Yes. If a seasonal employer received a PPP loan before the alternative criterion for such employers was posted on April 28, 2020, and would be eligible for a higher maximum loan amount under the alternative criterion, the lender may electronically submit a request through SBA’s E-Tran Servicing site to increase the PPP loan amount, even if the loan has been fully disbursed, provided that the lender’s first SBA Form 1502 report to SBA on the PPP loan has not been submitted. After the initial SBA Form 1502 report has been submitted to SBA, or after the date, the initial SBA Form 1502 report was required to be submitted to SBA, the loan cannot be increased. In no event can the increased loan amount exceed the maximum loan amount allowed under the PPP Program, which is $10 million for an individual borrower or $20 million for a corporate group. Additionally, the borrower must provide the lender with the required documentation to support the calculation of the increase.

2. Disbursements and 1502 Reporting on Increased PPP Loans
a. If a borrower’s PPP loan has already been fully disbursed, can the lender make an additional disbursement for the increased loan proceeds? Yes. Notwithstanding the requirement set forth in paragraph 1.a. of the interim final rule on disbursements posted on April 28, 2020, i.e., that lenders make a one-time, full disbursement of the PPP loan within ten calendar days of loan approval if a PPP loan is increased under paragraphs 1.a. or b. above, the lender may make a single additional disbursement of the increased loan proceeds prior to submission of the initial SBA Form 1502 report for that loan.

If you have any questions about whether or this interim final rules on loan increases applies to you, please contact your WB Representative or email us at covid19advisory@windhambrannon.com.

Click here to read the full Interim Final Rule on Loan Increases.

At Windham Brannon, we are dedicated to keeping you up to date with the latest Covid-19 activity in our Covid-19 Resource Center. Our team is working around the clock to ensure we stay up to date on the latest guidance and information to assist you and your business during this unique time. For further assistance, please do not hesitate to reach out to your Windham Brannon advisor or email us at covid19advisory@windhambrannon.com

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