Just last night, the SBA gave new weekend plans to those of us who advise borrowers and banks on how to plan for and understand the PPP loan forgiveness rules and process.
The Interim Final Rules reiterate that borrowers will be eligible for forgiveness in an amount equal to “the following costs incurred and payments made during the covered period.” These “costs and payments” include Payroll Costs, interest on mortgage obligations, rent, and utilities.
The above language is consistent with the Loan Forgiveness Application Instructions, which indicate that interest on indebtedness secured by “personal property” can be forgiven on debt that “was incurred” before February 15, 2020. Borrowers should exercise caution in amending related party debt or lease agreements, as the SBA could disagree with this position. This could also be used as a sword by the SBA against the borrower in the event of an audit because if the borrower could afford to pay a related party higher interest or higher rent, then there may be a question as to whether the loan was really necessary in the first place.
The rules generally provide that rent is treated the same way, and can be based upon the rental of real estate or non-real estate assets “under a Lease Agreement in force before February 15, 2020.” This clause tells us that “utilities” means an expense “for the distribution of electricity, gas, water,Certainly, these words include cell phone service and business costs of “internet access,” but not costs paid to third parties for services provided on the internet, such as Netflix, even if used in the business, Cloud services and other computer-based or third party provided expenses that are incurred “on the internet”.
The Interim Final Rules provides for a limitation on what compensation can be counted towards forgiveness paid to “owner employees and self-employed individuals” which many of us read to apply to employees who are shareholders in companies. The Rules state that compensation paid to"employee owners" that will count towards forgiveness cannot exceed the lesser of 15,385, or 8/52nds of their 2019 compensation, plus what is spent for their health insurance and pension costs.
the offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours; the borrower has maintained records documenting the offer and its rejection; and The Interim Final Rules give more guidance on the election that borrowers can make to consider all part-time employees to be working exactly 20 hours a week for calculation purposes.
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