The U.S. Small Business Administration (SBA) and Treasury issued an interim final rule yesterday that clarifies certain areas of loan forgiveness offered through the Paycheck Protection Program (PPP).
The Interim Final Rule on Treatment of Owners and Forgiveness of Certain Nonpayroll Costs reiterates several of the changes made through the PPP Flexibility Act but also provides the following new guidance for PPP borrowers:
- Owner-employees with less than a 5% stake in a C or S corporation are exempted from the PPP’s owner-employee compensation rule, which is intended to limit the amount of compensation that can be included in loan forgiveness calculations for owner-employees who have a significant say in how the PPP loan proceeds are allocated.
- Nonpayroll costs attributable to the business operation of a PPP borrower’s tenant or subtenant are not eligible nonpayroll costs for loan forgiveness purposes. For example, 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.
- Mortgage interest payments to a related party are not eligible for PPP loan forgiveness. Rent or lease payments made to a related party are eligible if both of the following criteria are met:
- The amount of loan forgiveness requested for those payments 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 Feb. 15, 2020.
For more information on these updates or any other areas of the PPP loan forgiveness process, please contact your Grassi advisor or our Emergency Loan Consultants on Grassi’s Crisis Response & Recovery hotline at 212.223.6216 or firstname.lastname@example.org.