Nearly six months after the launch of the Paycheck Protection Program (PPP), many borrowers are ready to submit their PPP loan forgiveness applications or have already submitted them.
While lenders and borrowers still face uncertainty regarding PPP rules, the general process of obtaining PPP loan forgiveness is clear. On August 12, 2020, the Small Business Association (SBA) issued a new interim final rule that provides guidance for borrowers and lenders on the appeal procedure for SBA loan review decisions for PPP loans.
The first interim final rule was posted on April 2, 2020, providing PPP loan application guidelines. Since then, the SBA has posted a number of other interim final rules implementing the PPP and loan review procedures. Subsequent to the June 5, 2020 enactment of the PPP Flexibility Act, on June 22, 2020, the SBA posted an interim final rule that reconciled the PPP Flexibility Act into the loan forgiveness application process.
In general, PPP loans are forgivable if your business used at least 60% of the loan for eligible payroll costs over a span of 24 weeks. Non-payroll costs, including mortgage interest, business rent and utilities are also eligible for forgiveness, but the new rules tweak certain eligibility requirements. Here’s what’s changed with the interim rules:
Some Owner-Employees Can See More Salary Forgiveness
The new guidelines state that an owner-employee in a C- or S-corporation who has less than a 5% ownership stake will not be subject to the owner-employee compensation rule, which caps the amount of loan forgiveness on owner-employee compensation.
No Forgiveness For Home Office or Tenant Expenses
If you rent out a portion of your office, you will not receive forgiveness for the portion of the rent your tenant pays you. And, home office expenses are only forgivable based on the prorated amount you claimed as a deduction on your 2019 tax filings or the amount you expect to claim on your 2020 filings.
Mortgage Interest Payments
If Business A holds any ownership interest in Business B, which owns the building, Business A is now considered “related” to Business B. This makes Business A eligible for forgiveness only for the portion of the rent or lease payments to Business B equal to or less than the amount of mortgage interest Business B pays on the property. One more caveat: All of this only applies when the lease and the mortgage agreement were entered into prior to Feb. 15, 2020.
This rule also means that if Business A is making mortgage payments on Business B’s property, or if Business B owns the building outright, without a mortgage or mortgage interest, Business A won’t receive any forgiveness.
Lendtek Wants to Help
With all these new caveats, it can be confusing and frustrating but at Lendtek we are here to help. If we worked with you to obtain your Paycheck Protection Program (PPP) loan, our representatives are available to answer any and all of your PPP forgiveness questions.