What the New Interim Final Rule Means for Small Business PPP Loan Borrowers

Published by Matt Brady | September 2, 2020

On August 24, 2020, the Small Business Administration (SBA) released a new Interim Final Rule (IFR) that can significantly impact small business owners who borrowed funds through PPP loans.

The two main areas addressed by the IFR relate to loan forgiveness of payroll costs for specified owner-employees, and to newly clarified limitations on forgiveness of certain non-payroll expenses. The following are the key takeaways:



The IFR’s new guidance concerning owner-employees only applies to C-corporations and S-corporations—not to limited liability companies or partnerships—and it only applies to C- and S-corporation owner-employees with less than 5% ownership. In these circumstances only, the cap on loan forgiveness for owner-employee payroll, fixed at 8 weeks’ worth of 2019 compensation for an 8-week coverage period or 2.5 months’ worth of 2019 compensation for a 24-week coverage period, is lifted.

In issuing this IFR, the SBA is seeking to lift the limitation for C- and S-corporation owner-employees who, due to their low ownership stake, may have little to no say in decisions regarding the allocation of PPP loan funds.


Loan Forgiveness for Non-Payroll Costs

Under the new IFR, limitations have been placed on the forgiveness eligibility for certain non-payroll costs, particularly those related to rent and mortgage interest:

  • Business owners may not seek loan forgiveness for any portion of their rent attributable to a tenant or subtenant. Likewise, they may not seek loan forgiveness for household expenses if their business is home-based. This principle applies to loan forgiveness for mortgage interest as well, stipulating that the forgiveness amount must be reduced according to the percentage of the mortgage covering property leased to a third party. Finally, in the case of shared property, loan forgiveness for utility payments is similarly restricted to the percentage that is used by the borrower for business purposes.
  • If a business owner pays rent to a related party, loan forgiveness is capped at the equivalent of the mortgage interest owed on the portion of the property rented by the borrower during the covered period (8 or 24 weeks). In order for this forgiveness to be obtained, both the lease and the mortgage must have been in place by February 15, 2020. When applying for forgiveness, borrowers will have to substantiate their request with mortgage documentation associated with rental payments to related parties. The reasoning for this cap is to remove a potentially unfair advantage for business owners who lease property through a related party rather than doing so directly.


PPP borrowers, particularly S- and C-corporation owners and small business owners seeking forgiveness for rent or mortgage interest, may well find themselves affected by this new IFR. To determine how the latest guidance may affect you, consult with your small business tax expert today.

As always, we will strive to keep you informed and if you have any questions, simply use the Contact Us button below to forward any questions directly to our team.


Matt Brady, CPA