SBA Announces Opening of PPP First Draw Loan Increases and Releases Guidance

The Small Business Administration (SBA) has released a Procedural Notice to SBA employees and PPP lenders regarding First Draw PPP Loan increases. Under the Economic Aid Act in the CAA, 2021, certain borrowers may request an increase under certain conditions.

Background. The CARES Act established the Paycheck Protection Program which permitted the SBA to provide loans to qualified businesses impacted by the coronavirus (COVID-19) pandemic. The 100% federally guaranteed loans must be used for payroll and certain non-payroll costs. The Consolidated Appropriations Act 2021 (CAA, 2021) was signed into law on December 27, 2020. The CAA 2021, included the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act) that authorizes $284 billion towards the Paycheck Protection Program and extends the PPP until March 31, 2021. The Economic Aid Act also expanded access to First Draw PPP Loans to other entities, expanded additional eligible expenses and clarified terms.

Increase to a First Draw PPP Loan. The Economic Aid Act permits certain borrowers to reapply or request an increase to a First Draw PPP Loan approved on or before August 8, 2020. Generally, the increased loan amount may not exceed the maximum loan amount the borrower is entitled to under PPP rules and may not exceed a total of $10 million for an individual borrower or $20 million for a corporate group. Documentation must be submitted to substantiate the increase. The lender must submit the request for the increase on or before March 31, 2021, electronically. Requests are subject to the availability of funds.

• Partnerships. In general, a partnership may request an increase to a First Draw PPP Loan if the SBA has not remitted a forgiveness payment to the Lender on that loan. The increase may include appropriate partner compensation even if the loan has been fully disbursed.

• Seasonal Employers. The Economic Aid Act revised the method that seasonal employers use to determine their maximum loan amount. Seasonal employers may 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. A seasonal employer may request an increase to a First Draw PPP Loan if the SBA has not remitted a forgiveness payment to the lender on that loan and if using the new method under the Economic Aid Act, the seasonal employer calculates a higher loan amount than under the prior method.

• Farmers and Ranchers. The Economic Aid Act changed the calculation of the maximum loan amount for certain farmers and ranchers. If the SBA has not remitted a forgiveness payment to the Lender and the farmer or rancher would be eligible for a higher maximum loan amount based on the new calculation method, the borrower may request an increase.

• Other borrowers. Other borrowers may be eligible for PPP loan increase or reapply under certain circumstances:

1. Eligible Borrowers that fully repaid a First Draw PPP Loan before December 27, 2020: Borrowers who fully repaid their PPP loan for which the SBA has not submitted a forgiveness payment to the lender, may reapply for a new First Draw PPP Loan for the amount the borrower may be eligible under the current PPP rules.

2. Borrowers that returned part of a First Draw PPP Loan before December 27, 2020: A loan increase may be approved by a lender for borrowers who returned or repaid part of a First Draw PPP Loan for which the lender reported to the SBA before December 27, 2020, that the loan was partially repaid and the SBA has not remitted a forgiveness payment. The lender may re-disburse funds equal to the difference between the amount retained by the borrower and the amount previously approved.

3. Borrowers that did not accept the full amount of a First Draw PPP Loan for which they were approved: Borrowers who did accept, before December 27, 2020, the full amount of an approved First Draw PPP Loan for which the SBA has not remitted a forgiveness payment to the lender, may request an increase in the amount of the First Draw PPP Loan up to the amount previously approved.

Loan increase availability. Lenders may approve increases on First Draw PPP Loans starting on January 25, 2021.

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