In its latest interim final rule (IFR #24) providing guidance under the Paycheck Protection Program (PPP), the Small Business Administration (SBA) provided clarification on two topics impacting borrowers that are preparing to apply for loan forgiveness and, in doing so, created new limitations on PPP loan forgiveness. A summary of this latest guidance follows.
Compensation Limits for Owner-Employees
The new guidance will help some small business owner-employees understand when their compensation is subject to special limits with respect to PPP loan forgiveness. As discussed in our prior client alert (see here), the SBA announced through FAQs that special limits apply with respect to loan forgiveness for loan proceeds used to pay compensation to owner-employees. These owner-employee restrictions impose both a lower cash compensation limit on owner-employees of borrowers who use the 24-week “covered period” for PPP loan forgiveness and certain categorical restrictions that differ from the treatment for ordinary employees. However, prior guidance did not specify any ownership threshold for these compensation limits, allowing speculation as to whether these limits would apply to any business owner, only owners of more than 20% of the business, or some other category of business owners. The new guidance provides as follows: