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Paycheck Protection Program Loan Updates – August 27, 2020

The U.S. SBA issued additional guidance on PPP loan forgiveness through issuing the following additional interim final rules and frequently asked questions.

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Insights  <  Paycheck Protection Program Loan Updates – August 27, 2020

The U.S. SBA issued additional guidance on PPP loan forgiveness through issuing the following additional interim final rules and frequently asked questions.

The U.S. Small Business Administration (SBA) issued additional guidance on Paycheck Protection Program (PPP) loan forgiveness through issuing the following additional interim final rules (IFR) and frequently asked questions covering through August 24, 2020:

The key takeaways to highlight are:

The SBA released an IFR on August 24, 2020 addressing owner-employees, eligibility of certain rental and mortgage interest payments, and related-party rent.

Clarification as to Exceptions to Owner-Employee

Are any individuals with an ownership stake in a PPP borrower exempt from application of the PPP owner-employee compensation rule when determining the amount of their compensation that is eligible for loan forgiveness?

Yes, owner-employees with less than a 5 percent ownership stake in a C- or S-Corporation are not subject to the owner-employee compensation rule.

Eligibility of Certain Nonpayroll Costs for Loan Forgiveness

Are amounts attributable to the business operation of a tenant or sub-tenant of the PPP borrower or, in the context of home-based businesses, household expenses, eligible for forgiveness?

No, the amount of loan forgiveness requested for nonpayroll costs may not include any amount attributable to the business operation of a tenant or sub-tenant of the PPP borrower or, for home-based businesses, household expenses.

The IFR provides the following four examples:

Lease of a Portion of Rented Office Building to Other Businesses

  1. A borrower rents an office building for $10,000 per month and subleases out a portion of the space to other businesses for $2,500 per month. Only $7,500 per month is eligible for loan forgiveness.

Lease of a Portion of Owned Office Building to Other Businesses

  1. A borrower has a mortgage on an office building it operates out of, and it leases out a portion of the space to other businesses. The portion of mortgage interest that is eligible for loan forgiveness is limited to the percent share of the fair market value of the space that is not leased out to other businesses. As an illustration, if the leased space represents 25% of the fair market value of the office building, then the borrower may only claim forgiveness on 75% of the mortgage interest.

Borrower Shares Rented Space with Another Business

  1. A borrower shares a rented space with another business. When determining the amount that is eligible for loan forgiveness, the borrower must prorate rent and utility payments in the same manner as on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.

Office in the Home Expenses

  1. A borrower works out of his or her home. When determining the amount of nonpayroll costs that are eligible for loan forgiveness, the borrower may include only the share of covered expenses that were deductible on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.

The SBA also addressed related-party rentals, capping eligible expenses based on only the mortgage interest owed on the property during the covered period. It also appears that any common ownership between the lessor and the lessee is enough to trigger this limit.

Are Rent Payments to a Related Party Eligible for Loan Forgiveness?

Yes, as long as the amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the covered period that is attributable to the space being rented by the business, and the lease and the mortgage were entered into prior to February 15, 2020. Any ownership in common between the business and the property owner is a related party for these purposes. The borrower must provide its lender with mortgage interest documentation to substantiate these payments. While rent or lease payments to a related party may be eligible for forgiveness, mortgage interest payments to a related party are not eligible for forgiveness.

FAQ Updates through August 11, 2020

Vision and Dental Benefits

Vision and dental benefits are included in group health care benefits including insurance premiums.

PPP Loan Forgiveness Assistance

blum has been on the forefront of interpreting PPP guidance and providing trusted resources for clients to keep them apprised of constant changes and providing the most up-to-date information to assist in calculating loan forgiveness. Our team is working with clients to assist them with navigating through compliance requirements of the loan forgiveness program, to ensure forgiveness is received, help expedite the loan forgiveness process and provide a reliable and trusted source of information. Learn more about our loan forgiveness services >>

We have recently updated our PPP Loan Forgiveness Toolkit & Calculator to reflect the changes made above. Access here >>


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Disclaimer:  The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.

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