​SBA Provides PPP Clarifications about Ownership and Rent and Mortgage Payments

​SBA Provides PPP Clarifications about Ownership and Rent and Mortgage Payments

08/26/2020 Tags: Announcements, In the News, COVID-19, PPP


The Small Business Administration earlier this week issued guidance about employee ownership, as well as rent and mortgage expenses when it comes to PPP loan forgiveness.

According to a Q&A from the Aug. 24, guidance:

Are any individuals with an ownership stake in a PPP borrower exempt from application of the PPP owner-employee compensation rule when determining the amount of their compensation that is eligible for loan forgiveness?

“Yes, owner-employees with less than a 5 percent ownership stake in a C- or S Corporation are not subject to the owner-employee compensation rule. … This exemption is intended to cover owner-employees who have no meaningful ability to influence decisions over how loan proceeds are allocated.”

Previously, it was believed the owner-employer threshold was 20%.

Although the 5% requirement exists for C-Corps and S-Corps, partnerships are required to treat anyone with ownership stake as an owner, even if their interest is less than 5%.

The guidance also includes information about nonpayroll costs related to rent and mortgage expenses.

According to the SBA, “[T]he 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 or, for home-based businesses, household expenses.”

The SBA included four examples to help clarify:

  • “A borrower rents an office building for $10,000 per month and subleases out a portion of the space to other businesses for $2,500 per month. Only $7,500 per month is eligible for loan forgiveness.
  • “A borrower has a mortgage on an office building it operates out of, and it leases out a portion of the space to other businesses. The portion of mortgage interest that is eligible for loan forgiveness is limited to the percent share of the fair market value of the space that is not leased out to other businesses. As an illustration, if the leased space represents 25% of the fair market value of the office building, then the borrower may only claim forgiveness on 75% of the mortgage interest.
  • “A borrower shares a rented space with another business. When determining the amount that is eligible for loan forgiveness, the borrower must prorate rent and utility payments in the same manner as on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.
  • “A borrower works out of his or her home. When determining the amount of nonpayroll costs that are eligible for loan forgiveness, the borrower may include only the share of covered expenses that were deductible on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.”

In a related rule, rent or lease payments to a related party are eligible for loan forgiveness but only if:

  • The amount of forgiveness the borrower is requesting is no more than the amount of mortgage interest owed on the property during the covered period.
  • The borrower entered into the lease and mortgage before Feb. 15, 2020.

However, borrowers can’t seek forgiveness for mortgage interest payments to a related party. According to the SBA, “PPP loans are intended to help businesses cover certain nonpayroll obligations that are owed to third parties, not payments to a business’s owner that occur because of how the business is structured.”

If you have questions about the most recent SBA guidance or anything else related to PPP, reach out to us.



This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.



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