New Guidance Issued for First-Draw PPP Loan Increases
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The U.S. Small Business Administration (SBA) released procedural guidance Wednesday night that details the requirements for Paycheck Protection Program (PPP) borrowers to reapply for a PPP loan or request an increase to a PPP loan. The procedural notice: (https://www.sba.gov/sites/default/files/2021-01/5000-20076.pdf) applies primarily to first-draw PPP loans approved by Aug. 8, 2020 (Not to second-draw PPP loans).
Under previous PPP rules, a PPP loan could not be increased unless the loan was made to a partnership or seasonal employer and the lender approved the increase before submitting the initial SBA Form 1502 report for the loan. However, Section 312 of the Economic Aid Act scraps the Form 1502 restriction and provides for additional narrow circumstances under which increased PPP loans would be allowed. The circumstances were described in the consolidated interim final rule (https://home.treasury.gov/system/files/136/PPP-IFR-Paycheck-Protection-Program-as-Amended-by-Economic-Aid-Act.pdf) (IFR) “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended by Economic Aid Act”
Requirements to reapply for a PPP loan or request a loan increase:
- Loan increases or reapplications are prohibited for PPP loans if the SBA has remitted a forgiveness payment to the lender for the loan, though such borrowers may be eligible for a second-draw PPP loan.
- Increases to first-draw PPP loans can be made only by the lender of record for the loan, i.e., the lender that is reflected in the SBA’s system as the current owner of the loan. If the loan was sold after it was originated, the lender that purchased the loan is the lender of record.
- Borrowers that returned or repaid a first-draw PPP loan are eligible to reapply for that loan provided the lender reported to the SBA before Dec. 27 that the borrower had fully repaid the loan or canceled the loan. The borrower may then apply for a new first-draw PPP loan in an amount the borrower is eligible for under current PPP rules.
- Borrowers that returned or repaid part of a first-draw PPP loan may request a loan increase equal to the difference between the amount not paid back by the borrower and the amount previously approved. The lender may disburse those funds to the borrower provided that the lender reported to the SBA before Dec. 27 that the loan had been partially repaid. For example, if a borrower returned $25,000 of a $100,000 PPP loan because the borrower could not spend the funds during the covered period, the lender can disburse $25,000 back to the borrower provided other conditions are met.
- Borrowers that did not accept before Dec. 27 the full amount of a first-draw PPP loan for which they were approved may apply for an increase in the loan up to the amount previously approved. Lenders may approve the request and disburse the funds but must follow one of two processes detailed in the notice based on how they reported before Dec. 27 that the borrower did not accept the full amount of the PPP loan.
We helped a multitude of businesses qualify for, and obtain a PPP Loan during the first round of funding throughout 2020. Whether you’d like to attempt to qualify for a first round “draw”, or need assistance with documenting the qualifications for a second round “draw”, we are here to assist you. Feel free to contact us with any questions you may have about the PPP.