In a procedural notice[1] the SBA provided lenders with guidance to deal with the additional disbursements on First Draw PPP loan provisions found in Section 312 of the Economic Aid Act.  This guidance implements provisions found in the law and the January 6, 2021 Interim Final Rule released by the SBA.

The SBA describes this guidance as follows:

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act or Act) (Pub. L. 116-260) changed the existing Paycheck Protection Program (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 the Lender submitted the initial SBA Form 1502 (1502) report for the loan. 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 purpose of this Notice is to guide SBA employees and Lenders on the procedures for such reapplications or requests for increases for a First Draw PPP Loan that was approved on or before August 8, 2020. This Notice also discusses how Lenders can obtain the additional processing fee that is due on the increased loan amount (if not previously paid by SBA), and how Lenders can obtain a processing fee on a reapplication.[2]

Exclusive List of Situations Qualifying for Additional Disbursement

The Notice provides that the situations described in the Notice are the only situations that qualify for an additional disbursement on previously approved First Draw PPP loans:

The interim final rule titled “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended by Economic Aid Act” (the “Consolidated IFR”) posted on SBA’s website on January 6, 2021, describes the additional narrow circumstances under which certain eligible borrowers may reapply for a new First Draw PPP Loan or request an increase to a First Draw PPP Loan approved on or before August 8, 2020. First Draw PPP Loan increases can be made only by the Lender of Record, and only under the circumstances outlined in this Notice. No other First Draw PPP Loan increases are allowed.[3]

As well, the loan cannot be one that has already been forgiven to qualify:

If SBA has remitted a forgiveness payment to the Lender on a First Draw PPP Loan, no loan increases or reapplications are allowed.[4]

Partnerships

The guidance first describes cases where a partnership is able to obtain additional funds.  The key requirement is that the initial loan did not include any amounts for compensation of partners:

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 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 and even if the Lender’s first 1502 report to SBA on the First Draw PPP Loan has already been submitted. The amount of the 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).[5]

The partnership will be required to provide the necessary information to support this request for additional funds.

Additionally, the borrower must provide the Lender of Record with all required documentation to support the calculation of the increase to include partner compensation, and the Lender must comply with the loan amount underwriting requirements in paragraph C.3. of the Consolidated IFR. [6]

Finally, the additional payment must be received from the original lender and submitted by March 31, 2021:

Any request for an increase must be submitted electronically in E-Tran by the Lender of Record on or before March 31, 2021, and is subject to the availability of funds. SBA will pay an additional processing fee to the Originating Lender on the amount of the increase.[7]

Seasonal Employers

Another group that may qualify for an additional disbursement of the First Draw PPP loan consists of employers who qualify as seasonal employers under the law.  The time period over which a seasonal borrower can look to find the 12-week period with the highest wages was expanded to a full year under the Consolidated Appropriations Act, 2021.  That expanded period may allow the borrower to now qualify for a larger loan.

The guidance explains the situation as follows:

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 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.[8]

In this situation the lender would submit the request to the SBA:

In that case, the Lender of Record may electronically submit a request through E-Tran to increase the seasonal employer’s First Draw PPP Loan amount, even if the loan has been fully disbursed and even if the Lender’s first 1502 report to SBA on the PPP loan has already been submitted. The amount of the 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).[9]

The borrower will need to provide the additional information to support its qualification for a larger loan amount:

Additionally, the borrower must provide the Lender of Record with all required documentation to support the calculation of the increase due to the newly-selected 12 week period, and the Lender must comply with the loan amount underwriting requirements in paragraph C.3. of the Consolidated IFR.[10]

Again, the original lender must be the one to send in the request:

Any request for an increase must be submitted electronically in E-Tran by the Lender of Record on or before March 31, 2021, and is subject to the availability of funds. SBA will pay an additional processing fee to the Originating Lender on the amount of the increase.[11]

Farmers and Ranchers

The Economic Aid Act allowed certain self-employed farmers and ranchers to use their gross receipts rather than net income to compute their income replacement amount for the PPP loan.  The Notice explains the situation as follows:

Section 313 of the Economic Aid Act changed the calculation of the maximum loan amount for certain farmers and ranchers. This calculation is described in subsection B.4.d. of the Consolidated IFR. If an eligible farmer or rancher received a First Draw PPP Loan and SBA has not remitted a forgiveness payment to the Lender on that loan, and such farmer or rancher would be eligible for a higher maximum loan amount based on the formula described in subsection B.4.d. of the Consolidated IFR, the Lender of Record may electronically submit a request through E-Tran to increase the First Draw PPP Loan amount, even if the loan has been fully disbursed and even if the Lender’s first 1502 report to SBA on the PPP loan has already been submitted. The amount of the 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). [12]

As was described for the previous situations, the borrower will have to submit documentation to show the qualification for the larger loan amount.

Additionally, the borrower must provide the Lender of Record with all required documentation to support the calculation of the increase under the new methodology, and the Lender must comply with the loan amount underwriting requirements in paragraph C.3. of the Consolidated IFR.[13]

Similarly, the request must be filed through the original lender:

Any request for an increase must be submitted electronically in E-Tran by the Lender of Record on or before March 31, 2021, and is subject to the availability of funds. SBA will pay an additional processing fee to the Originating Lender on the amount of the increase.[14]

Borrowers Who Fully Repaid a PPP Loan

If a borrower fully repaid a PPP loan before December 27, 2020, the borrower may qualify to obtain another disbursement up to the maximum the borrower is allowed to receive under the First Draw program.  The Notice describes the situation as follows:

If an eligible borrower received a First Draw PPP Loan, the Lender reported to SBA before December 27, 2020 that the borrower fully repaid the loan, and 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. Lenders may approve such a reapplication if the borrower is eligible for a First Draw Loan under current PPP rules.[15]

The Notice provides different steps a lender must take to obtain approval of the additional disbursement depending on whether the loan was reported as “cancelled” or “paid in full” originally.[16]

Borrowers Who Returned a Portion of Their First Draw PPP Loan

If a borrower returned some, but not all, of the original First Draw PPP loan, they may also qualify for an additional disbursement.  The Notice provides the guidance on when this option would be available:

If a borrower returned (or repaid) part of a First Draw PPP Loan, the Lender reported to SBA before December 27, 2020 that the borrower repaid the loan in part, and SBA has not remitted a forgiveness payment to the Lender on that loan, the Lender of Record may approve a borrower’s request for a loan increase and re-disburse funds equal to the difference between the amount retained by the borrower and the amount previously approved. After re-disbursing the loan increase amount, the Lender must ensure that the loan amount and status are correctly reported on the next 1502 report submitted by the Lender.[17]

The practical problem in this case is that the borrower cannot have requested forgiveness for the remainder of the loan.

The Notice gives the following example of an additional disbursement:

Example

For example, if a First Draw PPP Loan was originally approved in SBA’s loan processing system for $100,000, the Lender disbursed $100,000 to the borrower, the Lender reported the fully disbursed amount to SBA on the 1502 report, and the Lender reported before December 27, 2020 that the borrower repaid $25,000 to the Lender because the borrower could not spend the funds during the covered period (retaining $75,000), the lender can make an additional disbursement of $25,000 on the loan to increase the outstanding balance of the loan back to the approved amount of $100,000, provided SBA has not remitted a forgiveness payment to the Lender on that loan. Because the Lender previously reported the $25,000 borrower repayment on the loan to SBA on the 1502 report and E-Tran currently reflects an outstanding balance of $75,000 on the loan, the Lender must report a corrected balance of $100,000 on the loan on the first 1502 report submitted by the Lender after the $25,000 re-disbursement. If SBA previously paid the Originating Lender a processing fee based on the $100,000 fully disbursed amount, SBA will not pay the Originating Lender any additional processing fee as a result of the re-disbursement.[18]

Borrowers Who Did Not Accept the Full Amount of a First Draw PPP Loan

The final qualifying group consists of borrowers who did not accept the full amount of the original First Draw PPP loan they qualified for.  The Notice describes these qualified borrowers as follows:

If a borrower did not accept before December 27, 2020 the full amount of a First Draw PPP Loan for which it was approved in SBA’s E-Tran Origination site and 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.[19]

The notice contains instructions to the lender on how to process the request depending on how the lender had previously reported the transaction.[20]

Unresolved Borrowers

As the SBA announced in procedures for processing Second Draw PPP loans, if a borrower applies for an additional disbursement on a First Draw PPP loan while the SBA either has the loan under review or otherwise believes the borrower may have been ineligible for the First Draw loan, the request will not be immediately approved:

If a First Draw PPP Loan is under review pursuant to PPP rules and/or information in SBA’s possession indicates that the borrower may have been ineligible for the First Draw PPP Loan it received or for the loan amount received by the borrower, the Lender of Record will receive notification from SBA when the Lender submits a request for increase of the First Draw PPP Loan or submits a reapplication for a First Draw PPP Loan (“unresolved borrower”). If the Lender receives notification of an unresolved borrower, the Lender will not be able to process an increase on the First Draw PPP Loan, nor will the Lender be able to obtain an SBA loan number on a First Draw PPP Loan reapplication.[21]

The SBA will attempt to quickly resolve the issue to make an ultimate decision on the additional disbursement:

SBA will resolve expeditiously the issue related to the unresolved borrower and will notify the Lender of the process to obtain an increase on the First Draw PPP Loan or obtain a loan number on a First Draw PPP Loan reapplication, if appropriate.[22]

[1] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, https://www.sba.gov/sites/default/files/2021-01/5000-20076-508.pdf (retrieved January 23, 2021)

[2] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 1

[3] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, pp. 1-2

[4] [4] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 2

[5]  SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 2

[6] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p.2

[7] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 2

[8] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 2

[9] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 2

[10] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 2

[11] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, pp. 2-3

[12] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 3

[13] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 3

[14] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 3

[15] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 3

[16] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p.3

[17] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, pp. 4-5

[18] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 5

[19] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 5

[20] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 5

[21] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, pp. 8-9

[22] SBA Procedural Notice 5000-20076 “First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act,” January 13, 2021, p. 8