SBA PPP Loan Forgiveness Rules
The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses negatively impacted by COVID-19 to keep their workers on the payroll. On April 14, 2020, the Small Business Administration (SBA) released an additional Interim Final Rule (“the Rule”) that provides guidance on a couple of key areas of uncertainty around the PPP.
SBA Releases Additional Guidance Regarding Paycheck Protection Program
Section III(1)(a) provides guidance as to which self-employed individuals, filing Schedule C of Form 1040, are eligible for loans and loan forgiveness under the PPP. In order to be eligible for a loan under the program, the self-employed business must have been in operation on February 15, 2020.
This section also provides that if you are a partner in a partnership, you are not allowed to file a separate application for a loan under the PPP. Instead, the partnership is the entity that is eligible for loans and loan forgiveness under the PPP. This section of the guidance provides that the partnership may use the self-employed income of general, active may be reported as a payroll cost, up to $100,000 annualized. This guidance applies as well to LLCs taxed as partnerships.
Section III(1)b) of the Interim Final Rule provides detailed examples as to how a self-employed individual filing Schedule C makes the calculation to determine the amount that can be borrowed under the PPP. Examples are provided for a self-employed individual with and without employees. This section also provides guidance as to the type of documentation the self-employed individuals must provide with the loan application, including documentation that the self-employed business was in operation on February 15, 2020.
Under section III(1)(d) of the Rule, guidance is provided as to how the loan proceeds may be used by eligible self-employed individuals.
Interim final rule section III(1)(e) and (f) provide that 75 percent of the PPP loan proceeds must be used for payroll costs including qualifying owner replacement compensation.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.