The SBA has released Interim Final Rule 13 CFR Part 120, which clarifies rules for minority business owners (those with less than 5% ownership interest) and provides some more information for expenses related to home based businesses, sub-leased space, and rent paid to affiliates.
Regarding minority (less than 5%) business owners:
- For most owners, the amount of loan forgiveness for payroll compensation is capped at $15,385 for an 8-week covered period, $20,833 for a 24-week covered period, or a proportionate amount of their 2019 net income (8/52 if 8 weeks, 2.5 months if 24 weeks).
- Owner-employees with less than a 5% ownership stake in a C- or S-corporation are not subject to this owner-employee compensation rule. For these individuals, the forgiveness amount is capped at the same amount as employees – $15,385 for an 8-week covered period, and $46,154 for a 24-week covered period.
Regarding home based business expenses, sub-leased space, and rent paid to affiliates:
- The amount of loan forgiveness requested for nonpayroll costs may not include any amount attributable to the business operation of a tenant or sub-tenant of the PPP borrower or, for home-based businesses, household expenses.
- Sub-leased space example: If your business rents an office building for $10,000 per month and sub-leases a portion of the space to another business for $2,500 per month, only $7,500 per month is eligible to your business for loan forgiveness ($10,000 – $2,500 = $7,500).
- For a home-based business, when determining the amount of nonpayroll costs that are eligible for loan forgiveness, the borrower may include only the share of covered expenses that were deductible on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings. Personal household expenses not related to the business cannot be included.
- Finally, rent paid to a related party or affiliate is eligible for loan forgiveness as long as:
- the amount of loan forgiveness requested for rent or lease payments to a related party is not 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 business, and;
- the lease and the mortgage were entered into prior to February 15, 2020.
The full Interim Final Rule can be found here.
Please continue to review the SBA’s PPP FAQ’s here.