By now, many small businesses have applied for and received funds under the Paycheck Protection Program. Depending on when your loan was disbursed and your lender, you may be looking to start the forgiveness application process.
On Monday, August 24 the SBA released some new guidance clarifying some questions many businesses may have in regards to PPP Forgiveness. Below are some key takeaways that are worth reviewing.
Notably, owners with less than 5% ownership stake in C- or S- Corps are not subject to the owner-compensation rule/cap.
Non-payroll Costs Eligibility
A borrower who rents or sublets a portion of their property to another business may NOT include the money paid by that lesee in their forgiveness amount.
For example, if a PPP borrower rents a building for $10k a month and sublets an office space for $2k, they can only request forgiveness for their portion of the rent, or $8k.
If a PPP borrower has a mortgage on the building they operate out of and lease out a portion, the borrower can only request forgiveness for the percent share o the fair market value of the space that is NOT leased out. If the leased space represents 25% of the fair market value of the building, the borrower can only request forgiveness for 75% of the mortgage interest.
If a borrower shares rented space, the borrower must prorate rent and utility payments in the same way as on their 2019 tax filings (or expected 2020 if a new business)
Home-based businesses may include the share of covered expenses that were deductible on the borrower’s 2019 tax filings (or expected 2020 if new business).
Please note the IRS determined that anything covered by PPP will not be deductible as an expense on the 2020 tax filing.
Rent payments to a related party are forgivable as long as the amount requested for forgiveness does not exceed the amount of mortgage interest owed on and property, and the lease and mortgage agreements were in place prior to Feb. 15, 2020. This is not meant to replace payments to a business owner based on how the business is structured.
We understand how complicated this process may be for small businesses. CTSBDC Business Advisors are available to answer your questions to make sure you receive the forgiveness you need. Contact an advisor today.Go Back