By Robert T. Smith, Blake D. Lewis and Madeline O. McElhanon
On August 24, the U.S. Small Business Administration (SBA) released a new interim final rule regarding the Paycheck Protection Program (PPP). This new interim final rule provides additional guidance on the applicability of owner compensation rules and the eligibility of certain nonpayroll costs for forgiveness.
Owners Compensation Rules
Owner-employees with less than a five percent ownership stake in a C or S Corporation are not subject to the owner-employee compensation rule. This exemption is intended to cover owner-employees who have no meaningful ability to influence decisions on how loan proceeds are allocated.
Nonpayroll Costs Eligible for Loan Forgiveness
The amount of loan forgiveness requested for nonpayroll costs may not include any amounts attributable to the business operation of a tenant or subtenant of the PPP borrower. For home-based businesses, the amount of loan forgiveness requested for nonpayroll costs may not include household expenses.
Rent payments to a related party are eligible for loan forgiveness as nonpayroll costs so long as the amount of the loan forgiveness requested that is attributable to the space rented by the business does not exceed the amount of mortgage interest owed on the property during the Covered Period. The lease and the mortgage must also be entered into prior to February 15, 2020. The borrower must provide its lender with mortgage interest documentation to substantiate these payments.
We are advising both borrowers and lenders navigating the PPP loan forgiveness process. Please contact one of the attorneys listed above for assistance.
Robert T. Smith heads the Finance and Commercial Transactions Practice Group. His diverse corporate practice focuses on representing companies and financial institutions in general business, transactional, securities and regulatory matters.
Blake D. Lewis is an associate in the firm's Mergers and Acquisitions Practice Group. Blake's practice focuses on taxation, mergers and acquisitions, real estate transactions, tax controversies, entity formation and governance, and franchising.
Madeline O. McElhanon is an associate in the Finance & Commercial Transactions Practice Group where she advises banking and other corporate clients on transactional, tax, securities and regulatory matters.
Disclaimer: The information included here is provided for general informational purposes only and should not be a substitute for legal advice nor is it intended to be a substitute for legal counsel. For more information or if you have further questions, please contact one of our Attorneys.