SBA Establishes Procedures for Increasing First Draw PPP Loans

January 15, 2021

On January 13, 2021, the U.S. Small Business Administration (SBA) issued a Procedural Notice (the Notice) – First Draw Paycheck Protection Program (PPP) Loan Increases After Enactment of the Economic Aid Act (the Economic Aid Act).

The Notice

The Economic Aid Act, a component of the Consolidated Appropriations Act, 2021, changed the existing PPP rules regarding increases to PPP loans. Under previous PPP rules, a First Draw 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 report for the loan.

The notice provides that First Draw PPP Loan increases can be made only by the Lender of Record and only under the circumstances outlined in the Notice (as summarized below). No other First Draw PPP Loan increases are allowed.

If the SBA has already remitted a forgiveness payment to the Lender on a First Draw PPP Loan, no loan increases or reapplications are allowed.

Businesses Eligible for an Increase

Section 312 of the Economic Aid Act provides for additional narrow circumstances under which certain eligible borrowers that received a First Draw PPP Loan may reapply for a First Draw PPP Loan or request an increase in a First Draw PPP Loan that was approved on or before August 8, 2020.

The amount of any increase may not exceed the maximum loan amount to which the borrower is entitled under PPP rules, and in no event can the increased loan amount exceed the maximum PPP loan amount ($10 million for an individual borrower or $20 million for a corporate group).

Partnerships: If a partnership received a First Draw 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, and SBA has not remitted a forgiveness payment to the Lender on that loan, the Lender of Record may electronically submit a request through the SBA’s E-Tran Servicing site (E-Tran) to increase the First Draw PPP Loan amount to include appropriate partner compensation, even if the loan has been fully disbursed.

Seasonal Employers: Section 336 of the Economic Aid Act revised the method by which a seasonal employer may determine its maximum loan amount for purposes of the PPP to allow the seasonal employer to use the average total monthly payments for payroll for any 12-week period selected by the seasonal employer beginning February 15, 2019, and ending February 15, 2020. If a seasonal employer received a First Draw PPP Loan and the SBA has not remitted a forgiveness payment to the Lender on that loan, the seasonal employer would be eligible for an increase if application of the methodology in Section 336 of the Economic Aid Act results in the calculation of a higher loan amount.

Borrowers that Repaid their PPP Loan in Full: If an eligible borrower received a First Draw PPP Loan, the Lender reported to the SBA before December 27, 2020 that the borrower fully repaid the loan, and the SBA has not remitted a forgiveness payment to the Lender on that loan, the borrower may reapply for a new First Draw PPP Loan in an amount for which the borrower is eligible under current PPP rules. All reapplications are subject to the availability of funds.

Borrowers that Did Not Accept the Full Amount:  If a borrower did not accept before December 27, 2020 the full amount of a First Draw PPP Loan for which it was approved via the SBA’s E-Tran Origination site and the SBA has not remitted a forgiveness payment to the Lender on that loan, the borrower may request an increase and the Lender of Record may approve and disburse a loan increase in the amount of the First Draw PPP Loan up to the amount previously approved.

The Bottom Line

Borrowers who fit into one of the aforementioned categories should evaluate their eligibility to request an increase in their First Draw PPP Loan. Additionally, borrowers should gather the associated documentation that will be required by the Lender to substantiate the increased loan amount.

Let Aprio Help

Aprio has a nationally recognized dedicated PPP team that is continuously monitoring new guidance from the SBA, as well as the Treasury, Congress and the IRS, to ensure we have the latest information when advising our clients.

For assistance navigating the PPP, contact Aprio’s dedicated PPP team for a consultation.

Disclaimer for services provided relative to SBA programs and the CARES Act

Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.

The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.

Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.

You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.

In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.

Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.

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About the Author

Justin Elanjian

Justin Elanjian, CPA, is the Partner-in-Charge of Aprio’s Paycheck Protection Program (PPP) & Employee Retention Credit (ERC) Services. As a national PPP expert, prominent speaker and strategic business advisor, Justin helps both lenders and borrowers navigate the complexities of the PPP. He also helps his clients realize benefits from other stimulus package programs, such as the ERC, and is committed to strengthening his clients’ balance sheets and helping them achieve what’s next. Justin also leads a team of more than 50 professionals who share his passion for helping businesses maximize the federal COVID relief programs.