On Sunday, May 17, we issued an update on PPP loans which discussed the change in time frame which would be considered for loan forgiveness. At the same time that this new guidance was issued, the United States Department of the Treasury (USDT) issued additional guidance which clarifies under what circumstances loan forgiveness can be obtained for payroll to employees. The prior guidance discussed the expansion of forgiveness to include both paid and incurred obligations. However, additional guidance focuses on what payroll forgiveness is applicable to eligible business owners compensation and obligations.
The guidance on forgiveness for owners defined owners as follows: (1) individuals who own but are also employees of their business (e.g. individuals who own and work in a small corporation without corporate owners); (2) individuals who are self-employed (e.g. a sole proprietor); or (3) general partners of a business.
The guidance provides that loan proceeds can be used and forgiveness can be sought when the loan proceeds are used to pay these above listed categories of individuals at the lower of $15,385 per month[1] or the amount that the owner made in the same time period in 2019.
Non-Payroll Forgiveness for Owners:
All non-payroll forgiveness is governed by the principle that the indebtedness must originate out of an agreement or contract which was entered into prior to February 15, 2020.
With respect to mortgages, the guidance also clarified that while eligible non-cash payment forgiveness includes interest on mortgages related to both real and personal property incurred before February, there will not be forgiveness for prepayments of either interest or principal where the obligation was incurred before February 15, 2020,.
Similarly, the guidance provides that employers are eligible for loan proceed forgiveness for rent on either real or personal property for lease agreements which were entered into prior to February 15, 2020.
Each employer should keep these factors in mind as they prepare to request forgiveness related to any loan proceeds that they have received under the PPP.
[1] This amount is derived from the $100,000 cap on compensation contained the in the CARES Act.
Since many employers are rapidly approaching the end of the eight-weeks covered by the loan proceed, they should study the application for forgiveness. This application can be found by accessing the following link:
https://www.sba.gov/document/sba-form-2483-paycheck-protection-program-borrower-application-form
Stay tuned for additional guidance. If you have further questions, about these or other questions about the Paycheck Protection Plan loans click on this link to review the most recent Paycheck Protection Plan FAQ’s.
If you have additional questions, on this or other employment related issues arising in the context of COVID-19, feel free to contact Sheryl J. Willert at SWillert@williamskastner.com.
[1] This amount is derived from the $100,000 cap on compensation contained the in the CARES Act.