SBA Releases Guidance on Owner-Employee Compensation and Rent-Related Costs
The U.S. Small Business Administration (SBA) and Treasury issued the Interim Final Rule on Treatment of Owners and Forgiveness of Certain Nonpayroll Costs on August 24.
The interim final rule restates several of the changes made through the Paycheck Protection Program (PPP) Flexibility Act but also provides some new guidance for PPP borrowers, including:
- Owner-employees with less than a 5 percent stake in a C or S corporation are exempted from the PPP’s owner-employee compensation rule for determining the amount of their compensation for loan forgiveness. The exemption’s intent is to cover owner-employees who have no meaningful ability to influence decisions over how loan proceeds are allocated.
- Nonpayroll costs attributable to the business operation of a PPP borrower’s tenant or subtenant are not eligible nonpayroll costs for loan forgiveness purposes. For example, a borrower rents an office building for $10,000 per month and subleases out a portion of the space to other businesses for $2,500 per month. Only $7,500 per month is eligible for loan forgiveness.
- Mortgage interest payments to a related party are not eligible for PPP loan forgiveness. PPP loans are intended to help businesses cover nonpayroll costs owed to third parties, not payments to a business’s owner that occur because of how the business is structured.
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Our CARES Act Loan Consulting team can help organizations proactively work with their lenders by applying and understanding the requirements for loan forgiveness.