August 7, 2020 - On August 4, the Small Business Administration (SBA) released additional FAQs on Paycheck Protection Program (PPP) loans. They include information applicable to business owners, independent contractors, self-employed individuals, employees, lenders, and others on various aspects of loan forgiveness, and there are a few key areas we want to highlight.
The owner/employee compensation cap—which you can also read about in our recent article— applies across all businesses in which an individual has ownership including an S Corporation, C Corporation, partnership, or sole proprietorship. This is the first guidance that places an ownership compensation limit in the aggregate to all businesses an individual has an ownership interest in. The allocation of the limit across these businesses will be selected by the borrower.
The FAQ includes a forgiveness limitation on payments for any health insurance and retirement plan expenses that are accelerated from periods outside the Covered Period or Alternative Payroll Covered Period. It appears that health insurance and retirement plan expenses accrued prior to the Covered Period but paid during the Covered Period are eligible for forgiveness, but prepayments of these expenses are not eligible for forgiveness. FAQ 8 also includes additional guidance for owner(s)/employees, which provides that borrowers using a 24-week covered period are limited to 2.5/12ths of 2019 health insurance and retirement plan expenses for owner(s)/employees.
These are eligible for forgiveness and include a “payment for a service for the distribution of …. transportation” under the CARES Act. Prior to this new guidance, there was uncertainty as to which transportation costs could be counted as covered utility payments—the FAQ clarifies that eligible expenses include transportation utility fees assessed by state and local governments.
You can click here to read the FAQs in their entirety.
We are keeping a close lookout for new developments that matter to your bottom line. In the meantime, consider utilizing our compilation of resources to maintain your financial health.