My vet told me that puppies knees can be loose so there really is no need to worry. Grades 1 -2 usually do not require surgery. Grades 3 and 4 do not necessarily mean surgery either.
Talk with our vet about supplements...good to start early if you know that there may be a lp issue.
If you can, have stairs or ramps so your little one does not have to jump.
If you should have to have the surgery, make sure to get a board certified surgeon who is well versed with small dogs. Ask all and many questions and make sure you fully understand what is happening. Don't let the vet or surgeon "talk" you into anything, a 2nd opinion is always a good option. Best of luck to your little one.