This article was updated March 5, 2021.
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) provides several new provisions to the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), including a definition for seasonal employers. A seasonal employer is one that:
- Doesn’t operate for more than seven months in any calendar year, or
- During the preceding calendar year, had gross receipts for any six months that were not more than 33.33% of the gross receipts for the other six months of that year
The amended act now lets these employers request an increase to their original PPP loan if they qualify for a higher maximum loan amount under new guidance.
Borrowers need to understand the potential risks and unknowns related to requesting an increase in their original PPP loan amount and weigh them carefully against the benefit of an increase to the maximum. Below, discover key considerations to help businesses make this determination.
How to Calculate Loan Amount for a Seasonal Business
A seasonal employer determines its maximum loan amount by using its average total monthly payroll for any 12-week period selected by the seasonal employer beginning February 15, 2019, and ending February 15, 2020.
For agribusinesses, for example, the selected 12-week period would likely encompass the weeks of harvest when payroll expenses are at their highest. By using this seasonal business calculation, an employer isn’t forced to annualize payroll expenses over an entire year, which may yield a higher maximum loan amount.
Depending on how compressed the agribusiness employer’s harvest season is and the amount of payroll, the maximum loan amount for a seasonal employer using this seasonal business calculation method may be significantly higher than their original loan application maximum.
Determine Loan Forgiveness Amount
Requesting an increase to an original PPP loan doesn’t impact the ability to request loan forgiveness as long as an employer uses the loan proceeds for payroll and other permitted uses that were incurred in the 24-week covered period after the original loan proceeds were disbursed. Most applicants will be doing a lookback to account for how the proceeds received from a loan increase will be applied against expenses.
When submitting a loan forgiveness application, an employer is required to include full-time equivalent, also known as FTE, employee counts to determine if a loan can be fully forgiven. A seasonal employer electing to use an alternative 12-week base period to calculate its maximum PPP loan amount should also consider its reference period to calculate employee reductions.
Borrowers can still use a 24-week covered period after the original loan is funded to use proceeds on permitted expense. Borrowers considering a loan increase should calculate if a loan can be fully forgiven when comparing FTE counts from its reference period to its covered period. Loan forgiveness reductions against increases in loans should also be considered to help maximize loan forgiveness.
In addition to agribusiness, these calculation considerations for seasonal employees could also affect:
- Construction, particularly general contractors
- Hospitality, especially ski resorts, golf courses, resorts and hotels, and sports franchises
Beginning January 25, 2021, borrowers were able to begin applying for increases to original PPP loans. Requests can be submitted through March 31, 2021, and are subject to the availability of funds.
Remaining Unknown PPP Factors
There are still many unknowns associated with requesting an increase to a round one PPP loan.
Many lenders are still scrambling to figure out what additional support and documentation will be required because the SBA doesn’t have a standard form at this point. It’s also unclear whether an additional good-faith certification will be required by borrowers as of the date of the increase or if the original certification will suffice.
Other Considerations for Loans
Some companies may not necessarily need additional funds because they had a good enough year and many agribusinesses received Coronavirus Food Assistance Program payments.
While simply requesting an increase to the maximum loan amount may not increase the risk to a borrower, if the requested increase creates a total loan that is in excess of $2 million, the SBA will place additional scrutiny on the loan forgiveness request.
It’s important for borrowers to talk to their lenders if they’re contemplating requesting an increase to their original loan amount.
We’re Here to Help
For more details about the PPP program, or if you have questions about navigating the seasonal employer guidance, please contact your Moss Adams professional.