On Wednesday, May 13, 2020, the Small Business Administration (SBA) released Interim Final Rule 9 (“IFR 9“), which provides important guidance for partnerships on loan increases.
As an update, partnerships that received a Paycheck Protection Program (PPP) loan and only included the partnership’s employees in the loan amount calculation are given the option of submitting a request to the SBA to increase the PPP loan amount to include partner compensation. The request would allow the lender to make an additional disbursement, although the previously issued Interim Final Rule on Disbursements (Interim Final Rule – Disbursements of PPP Proceeds) requires PPP loans to be disbursed in a single disbursement. Although an additional disbursement is allowed, the SBA clearly stated that maximum loan amounts still apply, including $10 million for an individual borrower or $20 million for a corporate group.
As background, on April 14, 2020, the SBA released an interim final rule (“IFR 2”) to provide guidance for individuals with self-employment income. The rule, “Guidance on SBA Loans for Self-Employed,” stated, “if you are a partner in a partnership, you may not submit a separate PPP loan application for yourself 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.”
On April 28, 2020, the Department of the Treasury posted an interim final rule (“IFR 4”) that provided an alternative criterion for calculating the maximum loan amount for PPP loans issued to seasonal employers. It was expected that compensation to partners was not to be included in calculating the PPP loan amount. With concerns of diminishing PPP funds, many partnerships filed their applications quickly, and without including partner compensation in their calculations. The Interim Final Rule offers further options for ‘partnerships that received a PPP loan that did not include any compensation for its partners’ on their application.
Tarlow is Here to Help!
We are readily available to assist partnerships who applied for a PPP loan and did not include partner compensation as part of the loan amount calculation.
Please contact your Tarlow advisor for assistance and to discuss how to calculate partner income for the loan amount increase, or how to interpret and document spending requirements for PPP forgiveness.