First Draw PPP Loan Increases: 5 Borrowers Who May Be Eligible

Mary Ellen Biery
February 11, 2021
Read Time: min

Qualifying for PPP Loan Increases

Only certain borrowers may apply for more money tied to an earlier PPP loan.

Beyond PPP: Use the momentum

to grow your institution

read the whitepaper

Increasing First Draws

Borrowers can seek PPP loan increases.

The Economic Aid Act not only added money to the Paycheck Protection Program (PPP) pot, but it also expanded the number and types of businesses that can seek first draw PPP loan increases. These increases can be crucial for some small businesses that did not receive the maximum loan amount in an earlier round and may not qualify for a second draw loan because of the requirement to show a 25% reduction in gross receipts. 

In addition, the latest relief package added a limited option for borrowers to reapply for a first draw loan. In all cases now, however, a few rules apply for borrowers to be eligible:

  • Borrowers must have had a first PPP loan originally approved before Aug. 8, 2020.
  • The SBA cannot have remitted a forgiveness payment to the lender on a first draw loan.
  • The borrower must use the “Lender of Record,” or the lender reflected in the SBA’s system as the current owner of the loan. (If the loan was sold after origination, the lender of record is the lender that purchased the loan.)

During last year's version of the PPP,  the SBA allowed very few circumstances for increasing loans after they were approved. Borrowers had to either be seasonal employers or partnerships meeting certain requirements, and the lender had to approve the increase before submitting an initial SBA Form 1502 report for the loan. 

In the current round of the PPP, lenders should be aware that it is the “Originating Lender,” or the lender that processed the first PPP loan and received the SBA loan number, that will be paid any additional processing fees for increased loan amounts.

Keep in mind that the final deadline for reporting all increases or re-disbursements of first draw PPP loans is March 31, 2021, and all increases are subject to availability of PPP funds. Also keep in mind that if the lender has submitted a forgiveness decision to the SBA but the SBA hasn't yet remitted the forgiveness payment, the lender needs to withdraw that forgiveness decision from the
SBA Paycheck Protection Platform before submitting any loan increases or loan increase applications.  

So who exactly might qualify now for an increase to their previously approved PPP loan? Here are 5 types of borrowers who may be eligible under the new law, according to a recent SBA procedural notice to lenders.  

 

Borrowers who returned or repaid part of a first draw loan before Dec. 27, 2020

Among borrowers qualifying for PPP loan increases are those who repaid a portion of the first loan because they were unable to spend all the funds during the covered period. For this type of borrower to be eligible to receive an increase during this round of the PPP, they must have returned or repaid those funds by Dec. 27. In addition, the lender must have also reported by Dec. 27 that the borrower repaid the loan in part, and the SBA may not have remitted a forgiveness payment to the lender on the loan.

If all three conditions are met, the lender may go into E-Tran and approve a request, then disburse funds for an increase up to the difference between the amount retained by the borrower and the amount previously approved. The lender must report the corrected balance of the loan amount and the loan status on the next 1502 report submitted by the lender after re-disbursing the increase. If the SBA originally paid a processing fee based on the fully disbursed amount of the first draw loan, it will not pay additional processing fees for the re-disbursement.

Borrowers who did not accept the full amount for which they were eligible

In some cases, a borrower might have decided against accepting the full loan amount approved by during the PPP in 2020. If the full PPP loan amount was not accepted and disbursed before Dec. 27, 2020, and the SBA hasn’t remitted a forgiveness payment to the lender for the loan, the borrower may request a first draw increase of up to the amount previously approved. How the lender processes and reports this increase depends on how the original loan was reported:

-If the lender reported the original loan as a decrease of the loan amount in E-Tran when the borrower did not accept the full amount, the lender processes an increase on the original loan via E-Tran, then must disburse the increase within 10 calendar days of processing the increase and report it on the next 1502 report.

-If the lender reported the original loan as partially disbursed and never reported a decrease to E-Tran, the lender may make a disbursement up to the full amount approved in the system. It must report the disbursement and increase in the next 1502.

Partnerships that excluded partner compensation from their first loan request

Assuming the SBA has not remitted a forgiveness payment to the lender, if a partnership received a PPP loan earlier but 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, the borrower may be eligible for an increase.

The lender of record would need to submit a request through E-Tran to increase the first draw loan amount to include appropriate partner compensation, even if it has already disbursed the full loan and even if it has already submitted the first 1502 report on the loan. SBA would pay the lender an additional processing fee for the increased amount. Other eligibility requirements, loan limits, and lender underwriting requirements apply, so lenders should review the SBA Procedural Notice. In addition, borrowers must provide the required documentation to support  calculations of PPP loan increases that include the partner compensation.

Some seasonal employers

The Economic Aid Act revised how a seasonal employer could determine its maximum loan amount, and in some cases, it may result in the seasonal employer being eligible for more money. The new methodology allows seasonal employers to use the average total monthly payments for payroll for any 12-week period between Feb. 15, 2019, and Feb. 15, 2020, when calculating the maximum loan amount. Previously, seasonal employers had a narrower window from which to choose the 12-week period (between May 1, 2019 and September 15, 2019). If the lender has not already received a forgiveness payment for a seasonal employer with a first draw loan and using the revised methodology results in a higher loan amount, the seasonal employer may seek an increase.

Other PPP eligibility and lender underwriting requirements apply, and the borrower must provide the lender with documentation supporting the new calculation. Lenders are to submit such increases in E-Tran, according to the SBA’s Procedural Notice on First Draw Loan Increases, and the originating lender will be paid an additional processing fee based on the amount of the increase.

Some farmers and ranchers

The Economic Aid Act allows certain farmers and ranchers to change the way the maximum loan amount is calculated for PPP loans, even if they have already been disbursed – as long as the SBA has not already remitted a forgiveness payment to the lender. The new calculation allows the use of gross income from the IRS Form 1040 Schedule F, instead of net income, for farmers with no employees.

Other PPP eligibility and lender underwriting requirements apply, and the borrower must provide the lender with documentation supporting the new calculation. The increase would be submitted by the lender in E-Tran, and SBA would pay an additional processing fee for the increase to the originating lender.

Simplify PPP
Automate everything from origination through forgiveness.
Learn More see a demo
Who Can Reapply

Repay, return, or cancel a first draw PPP loan?

If a borrower fully repaid or returned the full amount of a PPP loan made earlier, and they did so before Dec. 27, 2020 and before the SBA remitted a forgiveness payment, that borrower might be eligible to reapply for a first draw PPP loan in this round of funding, according to the SBA. The lender must have reported the original loan as either paid in full or canceled to the SBA. If the earlier loan was reported to the SBA as canceled, the borrower may reapply for a first draw loan with any PPP lender.

However, SBA officials noted on a call with technology vendors Feb. 9 that there are many first draw loans from 2020 that should have been canceled in E-Tran but were not, even if the funds were not disbursed. As a result, a borrower would be wise to confirm with the original lender that the first loan was indeed canceled in SBA’s E-Tran system and not just the lender’s system before trying to apply to a different lender in this round of the PPP.

If the lender on the first application had reported the loan as paid in full following the return of all funds by Dec. 27, that same lender of record will need to change the loan status in E-Tran to “canceled” by following the SBA’s instructions outlined in Procedural Notice 5000-20076. Only then may a borrower be eligible to reapply for a first draw loan, assuming other eligibility requirements are met. Lenders must comply with loan amount underwriting requirements and report the new loans on a 1502 report within 20 days.

More Changes Sought

Lenders say more borrowers should be eligible.

Despite the expanded list of borrowers eligible for increases, some lenders and borrowers are pushing Congress to allow even more small businesses to qualify. The Independent Community Bankers of America (ICBA) on Feb. 9 wrote Congressional leaders seeking several “statutory fixes” to the PPP on behalf of community bankers. These requested fixes include:

  • Allowing borrowers whose loans have already been forgiven to apply for a first draw increase. Otherwise, borrowers who filed for forgiveness early are being punished, ICBA President and CEO Rebeca Romero Rainey said.
  • Allowing farmers and ranchers organized as partnerships or S corporations to use the gross income method, rather than net income, to calculate the maximum eligible loan amount and owner’s compensation. As noted above, currently, only farmers using Schedule F can use the gross income method, which may allow some farmers to apply for an increase.
About the Author

Mary Ellen Biery

Senior Writer and Content Specialist
Mary Ellen Biery is Senior Staff Writer & Content Specialist at Abrigo, where she works with advisors and other experts to develop whitepapers, original research, and other resources that help financial institutions drive growth and manage risk. A former equities reporter for Dow Jones Newswires whose work has been published

Full Bio

About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

Make Big Things Happen.

 

Looking for Banker’s Toolbox? You are in the Right Place!

Banker’s Toolbox is now Abrigo, giving you a single source for all your enterprise risk management needs. Use the login button here, or the link in the top navigation, to log in to Banker’s Toolbox Community Online.

Make yourself at home!