Whether this is actually a “final” rule will have to be seen, but here’s what you need to know from the Interim Final Rule on Treatment of Owners and Forgiveness of Certain Nonpayroll Costs.
- Non-payroll loan forgiveness impacted by leasing to a tenant. If you are requesting forgiveness for rent expenses, and have tenants to whom you sublease shared space, you can only apply for the amount attributable to your business operations. For example, if a business owner rents office space for $20k a month and subleases part of that space to another business for $5k per month, only $15k of your monthly rent payments are eligible for loan forgiveness.
- Related party rent limited for forgiveness. Until now, the SBA had not addressed related party lease agreements. (Rental rates for property that is owned and leased between related parties, need to be similar – at least 80% of the market average – to other rental properties in the market.) Recent guidance states that lease or rent payments made to a related party are eligible for loan forgiveness as long as the requested amount of forgiveness is no more than the amount of the mortgage interest owed on the property during the period of the PPP loan. The SBA clarified that PPP loans are meant to help businesses cover non-payroll liabilities to third parties. They are not intended to cover expenses that occur because of how the business is structured.
- C- and S-Corporation owner-employee compensation exemptions. Owners employed in the business with less than a 5% ownership in the C- or S-corp are not subject to the owner-employee compensation rule. This clarified confusion caused by earlier guidance that capped the amount of loan forgiveness for owners without defining the amount of ownership stake they had to have in the business. It is meant to cover those with minor ownership stakes who have no real ability to influence how the loan proceeds are spent.
If you have questions or want to discuss how these new requirements impact your PPP loan forgiveness, please reach out to us for help.