News & Tech Tips

SBA Issues Interim Final Rule on Loan Increases

Kathleen Hargrove on May 14, 2020

The SBA issued an interim final rule on Wednesday related to possible PPP loan amount increases. Some PPP loans were approved to partnerships, limited liabilities taxed as partnerships, or seasonal employers before the additional guidance was issued and, as a result, those businesses may not have received PPP loans in the maximum amount for which they are eligible.

 

This interim final rule authorizes all PPP lenders to increase existing PPP loans to partnerships, limited liability companies taxed as partnerships, or seasonal employers to include appropriate amounts to cover partner / member compensation in accordance with the interim final rule posted on April 14, 2020, or to permit the seasonal employer to calculate its maximum loan amount using the alternative criterion posted on April 28, 2020.

 

PARTNERSHIPS / LIMITED LIABILITY COMPANIES

 

If a partnership / LLC received a PPP loan that only included amounts necessary for payroll costs of the partnership’s / LLC’s employees and other eligible operating expenses, but did not include any amount for partner / member compensation*, the lender may electronically submit a request through SBA’s E-Tran Servicing site to increase the PPP loan amount to include appropriate partner / member compensation.

 

* As set forth in the interim final rule posted on April 14, 2020, a partner in a partnership may not submit a separate PPP loan application as a self-employed individual. Instead, the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership.

 

SEASONAL EMPLOYERS

 

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.

PPP Good Faith Certifications for Loans Less Than $2 Million

Kathleen Hargrove on May 13, 2020

The SBA and U.S. Department of the Treasury published an updated PPP FAQ document today including a new #46 (see below). It provides additional clarification about how SBA will review borrowers’ required good-faith certification concerning the necessity of their loan request.
Items of significance include:
  • A safe harbor that borrowers who received a PPP loan of less than $2m will be deemed to have made the required certifications in good faith and will not be subject to review.
  • For loans over $2m that are reviewed, if SBA determines that a borrower lacked adequate basis for the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness.
    • If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.
This guidance is intended to provide some comfort to borrowers who were uncertain about how the reviews previously described in FAQ #39 would be conducted, and therefore promote economic activity.
The full text of the new FAQ reads as follows:
46. Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?
Answer: When submitting a PPP application, all borrowers must certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” 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.
SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.
Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.
*For purposes of this safe harbor, a borrower must include its affiliates to the extent required under the interim final rule on affiliates, 85 FR 20817 (April 15, 2020).

We will continue to monitor this for additional updates and keep you informed. Please visit the COVID-19 section of the Whalen & Company website or contact your Whalen advisor for additional details regarding this announcement.

PPP Safe Harbor Date Extended to May 14

Kathleen Hargrove on May 6, 2020

The SBA and U.S. Department of the Treasury published FAQ 43 yesterday that extended the safe harbor loan prepayment date from May 7, 2020 to May 14, 2020.

 

The complete FAQ 43 reads as follows:

 

Question: FAQ #31 reminded borrowers to review carefully the required certification on the Borrower Application Form that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA guidance and regulations provide that any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. Is it possible for a borrower to obtain an extension of the May 7, 2020 repayment date?

 

Answer: SBA is extending the repayment date for this safe harbor to May 14, 2020.

 

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.

 

SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.

 

We will continue to monitor this for additional updates and keep you informed. Please visit the COVID-19 section of the Whalen & Company website or contact your Whalen advisor for additional details regarding this extension.

 

Trump Signs Additional Small Business Coronavirus Relief Bill

Kathleen Hargrove on April 24, 2020

President Trump has just signed a $484 billion interim coronavirus bill into law that includes additional money for the small-business loan program, as well as more funding for hospitals and testing.

The bill passed the Senate earlier this week and was approved by the House yesterday.

It includes more than $320 billion for the Paycheck Protection Program, or PPP, created by the CARES Act, which was passed late last month.

The PPP, which provides forgivable loans to small businesses that keep their employees on the payroll, had quickly run out of money due to high demand

About $60 billion of the additional PPP funding will be set aside for businesses that do not have established banking relationships, such as rural and minority-owned companies.

The bill also provides $60 billion in loans and grants for the Small Business Administration’s disaster relief fund, $75 billion for hospitals and $25 billion for coronavirus testing.

Another expansive round of coronavirus legislation is expected to be released in the coming weeks. We will continue to monitor this and keep you updated on any new information.

If you think your business is eligible for assistance and has not already received funding through this program, we are happy to help guide you through the process.

 

As always, feel free to reach out to your Whalen advisor with any questions on this new bill or anything else you may have questions about during this time.

 

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