August 30, 2020
The fast and furious updates around the Paycheck Protection Program (PPP) and the loan forgiveness process have come to a screeching halt recently. Since the Small Business Administration (SBA) opened the loan forgiveness portal, officially forgiveness applications from borrowers, there has been very little guidance or updates issued. One reason for the pause is the impasse in Congress between the HEALS Act and HEROES Act both of which make changes designed to reduce the complexity of loan forgiveness for small businesses. Given efforts have stalled with little hope of compromise on the horizon, borrowers have been patiently waiting before initiating the loan forgiveness process. On August 25th, the SBA issued an updated Interim Final Rule offering guidance on whether rent payments to related parties and certain nonpayroll costs are eligible for loan forgiveness. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Rent Payments to Related Parties
There was clarification provided on whether rent payments to related parties are eligible for loan forgiveness. According to the SBA, the answer is yes assuming two conditions are met. First, the amount of loan forgiveness requested for rent or lease payments to a related party can be no more than the mortgage interest owed on the property during the Covered Period attributable to the space being rented. Second, the lease and mortgage must have been entered into prior to February 15, 2020. It is important to note that any ownership in common between the business and the property owner is considered related to these purposes. As part of the forgiveness application, the borrower must provide the lender with appropriate documentation to prove these payments were made.
Eligibility of Certain Nonpayroll Costs for Forgiveness
There was also clarification provided about whether amounts attributable to the business operation of a tenant of a PPP borrower or in the case of home-based businesses, related household expenses. According to the SBA, the answer is no. For example, a borrower rents office space for $20,000 per month but subleases a section to another business for $5,000 per month. Only the $15,000 for the borrower’s eligible office space expense would be eligible for forgiveness. In another example, when a borrower works from home and is determining the amount of nonpayroll costs eligible for forgiveness, they can only include the share of covered expenses deducted on the 2019 tax return, or if a new business, the expected amount on the 2020 tax return.
Contact Us
As more borrowers approach loan forgiveness these details are necessary to help determine exactly what expenses qualify. If you have questions about the information outlined above or need assistance with PPP loan forgiveness, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.