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PPP Loan Update – SBA Allows LLCs and Partnerships to Seek PPP Loan Increase
Well after the Paycheck Protection Program (PPP) loan window opened, the Small Business Administration (SBA) unexpectedly changed the treatment of limited liability company members and partners, essentially recharacterizing them as employees (instead of self-employed individuals) for PPP loan purposes. Because this regulatory change came so late in the game, many partnerships and LLCs did not take into account member/partner compensation on their PPP loan applications, causing these early birds to understate their requested loan amount.
To remedy this problem, the SBA has issued additional guidance allowing an LLC or partnership borrower to seek an increased loan amount from its bank via the original PPP loan application, provided that the bank has not already filed an SBA Form 1502 with respect to the borrower’s loan. An LLC or partnership can seek a PPP loan increase, even if the bank has already funded the original PPP loan. In general, a bank is required to file an SBA Form 1502 either (a) within 20 days after PPP loan approval or (b) by May 22, 2020 if the PPP loan was approved before the availability of the updated SBA Form 1502.
An LLC or partnership that got whipsawed by the SBA’s regulatory change that seeks additional funds under its PPP loan should contact its bank as soon as possible and before the bank files SBA Form 1502 in respect of the loan.
Olshan lawyers from multiple practice groups are working together with clients to address COVID‑19-related matters, including the CARES Act stimulus programs (i.e., the PPP and EIDL) and other corporate matters, including contractual analysis and financing, tax, restructuring, employee benefits and employment practices, insurance coverage, and litigation. Click here to access additional materials addressing issues raised by COVID‑19.
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