SBA Makes Major Changes to Loan Forgiveness for Renters from Related Entities and Owner-Employees
September 1, 2020
By: Eric N. Fischer
On August 24, the Small Business Administration (SBA) issued an interim final rule addressing the impact of the limitations of loan forgiveness for payroll costs paid to owner-employees and the eligibility of certain nonpayroll costs for loan forgiveness. The important takeaways from the interim final rule for Paycheck Protection Program (PPP) borrowers are:
- C-Corporation and S-Corporation owner-employees with less than a five percent ownership stake are not subject to the owner-employee forgiveness limitations.
- The interim final rule clarified that rent paid by PPP borrowers to related parties is eligible for loan forgiveness. The interim final rule also imposed restrictions on the amount of loan forgiveness available for related party leases. Rent payments to related parties are eligible for loan forgiveness if: (a) the amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the Covered Period that is attributable to the space being rented by the borrower, and (b) the lease and the mortgage were entered into prior to February 15, 2020. Effectively, this makes loan forgiveness for related party rent payments unavailable for real property without a mortgage and caps loan forgiveness at the amount of mortgage interest.
In the event you have follow up questions about the PPP Loan Forgiveness or have other questions about the Paycheck Protection Program or other COVID-19 related relief, please contact your Nyemaster Goode attorney.