CARES Act: SBA Issues Guidance on Treatment of Owners and Forgiveness of Certain Nonpayroll Costs Under Paycheck Protection Program | Practical Law

CARES Act: SBA Issues Guidance on Treatment of Owners and Forgiveness of Certain Nonpayroll Costs Under Paycheck Protection Program | Practical Law

The Small Business Administration (SBA) issued an interim final order (IFR) that provides an exemption for owner-employees of less than 5% of certain Paycheck Protection Program (PPP) borrowers from the owner compensation rule when determining PPP loan forgiveness. It also limits the eligibility of certain nonpayroll costs for PPP loan forgiveness.

CARES Act: SBA Issues Guidance on Treatment of Owners and Forgiveness of Certain Nonpayroll Costs Under Paycheck Protection Program

by Practical Law Finance
Published on 27 Aug 2020 • USA (National/Federal)
The Small Business Administration (SBA) issued an interim final order (IFR) that provides an exemption for owner-employees of less than 5% of certain Paycheck Protection Program (PPP) borrowers from the owner compensation rule when determining PPP loan forgiveness. It also limits the eligibility of certain nonpayroll costs for PPP loan forgiveness.
On March 27, 2020, the US government passed the CARES Act in response to the COVID-19 crisis. Under the CARES Act, the Small Business Administration (SBA) offered loans under the Paycheck Protection Program (PPP). For more information on the PPP, see Practice Note, Road Map to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act): Paycheck Protection Program (PPP).
On August 27, 2020, the SBA issued an interim final order (IFR) that provides an exemption for owner-employees of less than 5% of certain PPP borrowers from the owner compensation rule when determining PPP loan forgiveness. It also limits the eligibility of certain nonpayroll costs for PPP loan forgiveness.

Ownership Exemption

Owner-employees with less than a 5% ownership stake in a C- or S-Corporation that is a PPP borrower are not subject to the owner-employee compensation rule when determining the amount of their compensation that is eligible for loan forgiveness. Prior PPP interim final rules have capped the amount of loan forgiveness for payroll compensation attributable to an owner-employee. This rule exempts an owner-employee in a C- or S-Corporation who has less than a 5% ownership stake. This exemption is intended to cover owner-employees who have no meaningful ability to influence decisions over how loan proceeds are allocated.

Eligibility of Certain Nonpayroll Costs for Loan Forgiveness

The amount of loan forgiveness requested for nonpayroll costs may not include:
  • Any amount attributable to the business operation of a tenant or sub-tenant of the PPP borrower.
  • Household expenses for home-based businesses.

Eligibility of Rent or Lease Payments to a Related Party for Loan Forgiveness

Rent or lease payments to a related party (a property owner who has an ownership in common with the PPP borrower) are eligible for loan forgiveness, provided:
  • The amount of loan forgiveness requested for rent or lease payments to a related party is no more than the mortgage interest owed on the property during the Covered Period for the space being rented by the business.
  • The lease and the mortgage were entered into before February 15, 2020.
The borrower must provide mortgage interest documentation evidencing these payments to its lender. Mortgage interest payments to a related party are not eligible for loan forgiveness.

More Information

For summaries of the SBA PPP, see:
For additional guidance from the Treasury Department, see: