New PPP rules from SBA aimed at clarifying loan forgiveness

The U.S. Small Business Administration, which manages the Payroll Protection Program (PPP), began applying for loan relief on August 10th. Just two weeks later, the bureau, in conjunction with the Treasury Department, issued additional guidelines on forgiveness of designed pandemic loans to keep workers on payroll.

If you are an owner and you thought you were clear on how to apply for PPP loan forgiveness, the SBA this week released another interim-final rule that adds even more complexity to certain areas of forgiveness. Some of the new terms may work in your favor – or against you – depending on your type of business and how you have used your funds.

Generally, PPP loans are forgiven if your company uses at least 60% of the loan for eligible loan costs over a span of 24 weeks. Non-wage costs, including mortgage interest, corporate rent and utilities, are also eligible for forgiveness, but the new rules adjust certain eligibility requirements. Here is what has changed.

Some owner-employees may see more remission of salaries

The new guidelines state that an owner-employee in a C- or S-corporation who owns less than 5% will not be subject to the owner-employee compensation rule, which covers the amount of loan forgiveness on compensation for owner-employee,

Prior to the change, the Owner-Employee Compensation Rule stipulated that anyone with a share in a company – however small – who took out a PPP loan would be eligible for forgiveness of less than $ 20,833 than 20,833% of them 2019 compensation as $ 15,385 as 15,385% if the loan opted for an eight week coverage.

The updated guidance means that if you have a shareholding below 5% in your company, you are now eligible for more salary forgiveness – up to $ 46,154 per individual over 24 weeks. In addition, comprehensive benefits such as health care expenses, pension contributions and state taxes levied on wages paid by the employer would also be eligible for forgiveness.

No forgiveness for home office or rent costs

If you rent part of your office, you will not be forgiven for the part of the rent that your tenant pays you. For example, if you rent some of your office space and they pay you one-third of your total monthly rent, you are only entitled to forgiveness for the two-thirds of the rent you pay.

The reverse is also true. If you have rented your office space, you will only be eligible for forgiveness on the part of your business of the total monthly amount. If you pay part of the bill for that space, you will only be forgiven for the part of the bill you pay. And home office expenses are only deductible based on the proportionate amount you have claimed as a deduction on your tax return for 2019 as the amount you expect to claim on your 2020 submission

Mortgage interest payments: it’s complicated

The amended guidelines also include changes in the forgiveness rules for companies that own the building where they pay rent. Here’s how it works: If Company A has a stake in Company B that built it, Company A is now considered “related” to Company B.

This means that Company A is only eligible for forgiveness for the part of the rent or lease payments to Company B equal to or less than the amount of mortgage interest that Company B pays on the property. One more warning: all this applies only if the lease and the mortgage agreement were entered into before 15 February 2020.

This rule also means that if Company A makes mortgage payments on property owned by Company B, or if Company B owns the building directly, without a mortgage or mortgage interest, Company A will not receive forgiveness. That is a potential punishment for those who expected to receive forgiveness on this part of their loan.

Bottom line

With this new set of rules, owner-employees may not be eligible for as much forgiveness of their PPP loans as they originally thought. New guidelines are being worked out on the process of granting PPP loan and how to calculate the qualification of your business. It’s key to stay up to date with new rules and regulations, to make sure your paperwork is up to date when you submit for forgiveness.