The Moving Target of the PPP Loan Forgiveness

The SBA opened the forgiveness application submission on August 10. Almost immediately, we see various financial institutions notifying their customers that they would not begin accepting forgiveness application, anticipating more changes from the SBA. When Congress is back in session, they are going to vote on an even simpler one-page forgiveness application for loans less than $150,000. So stay tuned if this affects your company.

We’ve taken a look at the latest and greatest and summarized answers to those FAQs that are of the most concerned to business owners. If you are interested in reading the complete FAQs published by the treasury, here is the link.–Loan-Forgiveness-FAQs.pdf

The 5% rule – you have to own at least 5% of the business in order to be consider an owner-employee of a C or S corporation. This is important because payroll costs for an owner is limited to $100,000 a year. This rule does not apply to partners, or LLC members where the LLC is taxed as a partnership.

Payroll costs – health insurance premiums – the new FAQ clarifies that only the portion of the premiums paid by the company is eligible for forgiveness. That means that if a company pays 80% of the health insurance and employees pay the other 20% pre-tax or after tax, only 80% of the health insurance premium is eligible for forgiveness. The rule also allows vision and dental insurance to be included as payroll costs.

Making payments on your loan – companies have 10 months from the covered period to submit the forgiveness application. Companies are not required to make any payments until forgiveness is determined. Interest started accruing at the time when the loan proceeds disbursed and companies are responsible for accrued interest related to the unforgiven portion of the loan, in addition to the principle of the loan that is not forgiven. Once application is submitted to the bank, the bank has 30 – 60 days to review.

EIDL loan advance – the SBA will reduce a company’s loan forgiveness amount by the amount of the EIDL advance it received. On the forgiveness application, it is required that a company indicates the amount of the EIDL advance it received. Therefore, if a company received an EIDL loan advance in excess of the amount of the PPP loan, it would not receive any forgiveness on the PPP loan and must repay the PPP loan prior to the maturity date.

Non-payroll costs – rent to related party – rent to a related party (defined as parties with common ownership) is eligible for forgiveness if (1) the lease was entered into prior to February 15, 2020 and (2) the rent amount is no more than the mortgage interest owed on the property during the covered period.

Non-payroll costs – rent and sublease – a company that rents but also subleases its space is only eligible to apply the difference (i.e. rent paid less rent received from sublease) for forgiveness.

Non-payroll costs – mortgage interest and sublease – a company that has a mortgage on a real property that also leases out space to other businesses is eligible to apply the portion of the mortgage interest attributable to its own utilization for forgiveness. For example, if 60% of the fair market value of the property is rented to other businesses, the company can only claim 40% of the mortgage interest paid.

We know that it could be overwhelming for businesses to try to rebuild their businesses while navigating through a moving target to obtain maximum forgiveness. We are here to provide some calmness in a sea of chaos and ready to assist you to improve your cash flows and help you stay in compliance with the Paycheck Protection Program. Please Contact Us for a complimentary consultation.

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