SBA allows increased PPP loans to partnerships, extends safe harbor to May 18

By Jeff Drew

The U.S. Small Business Administration (SBA) issued a new interim final rule Wednesday night opening the door for lenders to increase existing Paycheck Protection Program (PPP) loans to partnerships and seasonal employers. In separate guidance, the SBA extended the safe harbor for returning PPP loans from May 14 to May 18.

The new interim final rule relating to partnerships addresses situations where some completed their loan applications before guidance was released April 14. The April 14 interim rule prohibited partners in partnerships from submitting a separate PPP loan application for themselves as self-employed individuals. Instead, the self-employment income of general active 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.

That ruling meant that partnerships, including accounting firms, that had already submitted PPP applications without including partner self-employment income likely did not receive the maximum amount of PPP loans for which they were eligible. Similarly, an interim final rule dated April 28 established an alternative criterion for calculating the maximum loan amount for PPP loans issued to seasonal employers.

The interim final rule issued Wednesday allows all PPP lenders to increase existing PPP loans to partnerships or seasonal employers to include appropriate amounts to cover partner compensation in accordance with the April 14 interim final rule, or to permit the seasonal employer to calculate its maximum loan amount using the alternative criterion posted on April 28.

In addition, although the interim final rule on disbursements posted on April 28 requires PPP loans to be made in a single disbursement, if a PPP loan that is increased has already been disbursed, this interim final rule authorizes the lender to make an additional disbursement of the increased loan proceeds prior to submission of the initial SBA Form 1502 that includes that loan.

The safe harbor extension for the return of PPP funds to May 18 is granted in the answer to Question 47 on the PPP’s FAQ page. The SBA previously had extended the safe harbor from May 7 to May 14. The safe harbor gives an opportunity for borrowers that received PPP loans to return them if they are not able to make a good-faith certification of the necessity of their loan requests.

The SBA also issued a safe harbor Wednesday stating that businesses that together with their affiliates accepted less than $2 million in PPP funds will be assumed to have performed the certification of the necessity of their loan requests in good faith.

The SBA had warned April 23 that businesses with substantial access to liquidity may not qualify for PPP loans. On April 28, Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza announced that the SBA would review all PPP loans in excess of $2 million to make sure borrowers’ self-certification for the loans was appropriate.

Out of concerns whether their loans would be deemed appropriate, some larger companies that initially received PPP funds have returned them. For the same reason, some leaders of smaller companies have also considered returning their PPP funds or hesitated to apply for PPP loans. The $2 million threshold provides a safe harbor for organizations with smaller loans, and the deadline extension to May 18 gives organizations more time to decide whether to return their loans.

Congress established the PPP to provide relief to small businesses during the coronavirus pandemic as part of the Coronavirus Aid, Relief, and Economic Security Act, P.L. 116-136. PPP funds are available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans.

The forgivable loans were designed to help employers keep their employees paid and support their organizations facing economic hardships created by the coronavirus pandemic. An eligible recipient of a covered loan can receive forgiveness of indebtedness on the loan in an amount equal to the sum of payments made for the following expenses (subject to limitations) during the eight-week covered period beginning on the covered loan’s origination date: (1) payroll costs; (2) payment of interest on any covered mortgage obligation; (3) payment on any covered rent obligation; and (4) any covered utility payment. Section 1106(i) excludes from gross income any amount forgiven under the PPP.

The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.

Jeff Drew ( is a JofA senior editor.

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