As you are probably aware, many banks have been promoting that they have started to accept applications for PPP loan forgiveness. However, the banks are finding that most of the forgiveness applications they receive are incomplete or incorrect. This is partly due to the lack of significant guidance from the SBA and the Treasury Department on the filing of applications prior to the completion of the 24-week covered period. The SBA and Treasury continue to release guidance containing definitions and limits vs. the logistics and mathematics of filing for forgiveness early.
To that end, an Interim Final Rule (IFR) was issued on August 24th. This IFR contains information on certain situations like sublets, mortgage interest, and home-based businesses. It speaks to some more common scenarios as well. This interim final rule clarified the following:
- Corporate owners with less than 5% ownership are NOT subject to the limits on owner compensation (see this chart on owners’ compensation limits).
- Partners in a partnership, however, are still subject to the $20,833 guaranteed payment limit for the 24-week covered period.
- Related party rent expense is now limited to the equivalent of the mortgage interest on the property during the covered period.
- Mortgage interest paid to a related party is NOT eligible for forgiveness
If any of the above circumstances apply to your situation and you filed the forgiveness application prior to August 24th, it is most likely wrong. You should contact your bank immediately to see what can be done to correct your application.
We, as a firm, are STILL advocating patience in filing the applications. There will definitely be more guidance issued on the logistics and mathematics of completing the application. There will also most likely be more guidance issued on dollar limits, definitions, etc. Most of all, we believe there will be more legislation passed possibly affecting the PPP program.
We will continue to monitor the situation and communicate significant developments. We will also consider holding a Zoom Meeting on the topic for the end of September or beginning of October.
As always, if you have any questions, please do not hesitate to call us (215-723-4881).