Client Alert: Recent SBA Guidance Allows Partnerships to Increase PPP Loan Amounts to Cover Partner Compensation If Not Included in Original PPP Application

Date: May 15, 2020
In the early days of the PPP, there was some confusion regarding the ability of a partnership (or an LLC taxed as a partnership) to include the compensation of the partners in the original loan amount, as partners’ compensation is not W-2 income.  Subsequently, on April 14, 2020, the SBA provided guidance allowing partners’ compensation to be included in the PPP loan amount based on an annualized amount not exceeding $100,000.

What happens to the partnerships that applied for the PPP without the benefit of that SBA guidance allowing a partner’s income to be included in the PPP loan amount?  The most recent SBA guidance released May 14 allows these partnerships to apply for an increase to their PPP Loan (subject to the $100,000/partner limitation).

Specifically, the SBA now permits partnerships that received PPP loans based solely on the payroll costs of the partnership’s employees, but not including any amount for partner compensation, to apply for an increased loan amount to include the compensation of the partners.

But, PPP borrowers should be aware that this is very time sensitive. PPP borrowers must apply for their loan increase before the bank reports the borrower’s prior loan to the SBA through submission of the bank’s monthly SBA Form 1502 report.  Borrowers would need to ask their banks about the status of their Form 1502 filing to determine whether the window is still open for requesting an increased loan amount.