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SBA ALLOWS INCREASED PPP LOANS TO PARTNERSHIPS
On May 13, 2020, the U.S. Small Business Administration (the “SBA”) issued guidance in the form of an interim final rule (the “New Guidance”) allowing lenders to increase existing loans made under the Paycheck Protection Program (the “PPP”) to partnerships. The New Guidance supplements the interim final rule announcing the implementation of the Coronavirus Aid, Relief, and Economic Security Act posted by the SBA on April 2, 2020.
The New Guidance as it relates to partnerships addresses situations where parties completed their PPP loan applications prior to the interim rule released on April 14, 2020 (the “Prior Guidance”). The Prior Guidance prohibited partners in partnerships from submitting a separate PPP loan application for themselves as self-employed individuals. Instead, the self-employment income of general partners was to be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by, or on behalf of, the partnership.
The New Guidance allows all PPP lenders to increase existing PPP loans to partnerships to include appropriate amounts to cover partner compensation in accordance with the Prior Guidance. In addition, although the interim final rule issued on April 28, 2020 requires PPP loans to be made in a single disbursement, if an increased PPP loan has already been disbursed, the New Guidance authorizes the lender to make an additional disbursement of the increased PPP loan proceeds prior to submission of the initial SBA Form 1502 that includes that loan.
SAFE HARBOR EXTENSION
On May 13, 2020, the SBA provided updates to the Frequently Asked Questions (FAQs) related to the safe harbor for borrowers to return PPP loan proceeds. The safe harbor allows borrowers that received PPP loans the opportunity to return the loan proceeds in the event they are unable to make a good-faith certification with respect to the necessity of the loan request. In FAQ No. 47, the SBA extended the safe harbor from May 14, 2020 to May 18, 2020. The SBA previously extended the safe harbor from May 7, 2020 to May 14, 2020.
GOOD FAITH CERTIFICATION
On May 13, 2020, the SBA also issued a safe harbor stating that businesses (including affiliates) that received less than $2 million in PPP loans will be deemed to have performed the certification of the necessity of their PPP loan requests in good faith.
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