PPP Update: SBA Guidance for General Partners and the Self-Employed

After the initial funds for the Paycheck Protection Program (PPP) were depleted last week, Congress began negotiations on a fourth stimulus bill to provide additional funding. The Senate passed a bill yesterday that provides an additional $300 billion for PPP loans, and the bill is expected to be voted on by the House tomorrow, Thursday, April 23rd. If passed and signed into law, the PPP loans will be issued on a first come, first served basis, making it important for small businesses and self-employed individuals to gather documents, prepare applications, and continue working with their lending officers to ensure applications are filed as soon as possible. 
 
As the available funds underpinning the forgivable loan program ran out late last week, the SBA finally issued additional PPP guidance for independent contractors and self-employed individuals. This supplement to the Interim Final Rule, issued earlier this month, provides much needed clarification for independent contractors and self-employed individuals, as well as additional guidance for general partners.

Guidance for Partners and General Partners

The message here is simple. If you are a partner or general partner, do not file a separate loan application. Only the partnership is entitled to apply for a PPP loan. 

The SBA guidance allows for up to $100,000 of annualized self-employment income of general active partners to be included as wages in the PPP application filed for the partnership. While the guidance does not define a general active partner, we expect the intent is to exclude mere investors and other limited type partners who are not active participants in the partnership.

Key Highlights for Self-Employed Individuals

Are you a self-employed individual?

  • The new guidance is specifically for independent contractors and self-employed individuals who reported income on their 2019 Schedule C of Form 1040 and were in business as of February 15, 2020.
  • For independent contractors or self-employed individuals who started new businesses in 2020, the SBA has promised additional guidance later, so stay tuned.

How do you calculate the maximum PPP Loan?

  • The maximum PPP loan is equal to your 2019 average monthly wages multiplied by 2.5 (capped at $10 million). The definition of monthly wages depends on whether you employ other individuals.
  •  If you did not have employees, your average monthly wages are equal to the net profit on your 2019 Schedule C (limited to $100,000) divided by 12 months.
  • If you paid employees, your average monthly wages are calculated as follows:

2019 Schedule C Net Profit (not less than $0 or more than $100,000)

  • The loan would be increased by the outstanding amount of Economic Injury Disaster Loan (EIDL) issued between January 31 and April 3, 2020 that you want to refinance into the PPP loan and decreased by the total of any EIDL grant (advance) received.

Eligible Expenses for Loan Forgiveness

  • The PPP loan proceeds can be used to cover eight weeks of the following expenses: payroll costs, owner compensation replacement (limited to 8 weeks of 2019 net profit), payments of certain business mortgage interest, business rent, and business utility payments.
  • Similar to the guidance in the Interim Final Rule, 75% of the loan proceeds must be used for payroll costs and owner compensation replacement (subject to the same $100,000 cap described earlier). 

Conclusion

Assuming the fourth stimulus bill becomes law, it may not be too late to submit a PPP application. It is expected that any new funds will be depleted as fast, or faster, than the original PPP funding. With that in mind, ATKG strongly encourages clients to contact their banker and ATKG representative right away to apply. ATKG promises to keep you informed of any legislative changes.

ATKG Coronavirus Newsroom

Visit the ATKG Coronavirus newsroom for a complete listing of articles released by ATKG addressing the fast paced changes occurring in the US as a result of the COVID-19 pandemic.

David Higginbotham is a Senior Manager with ATKG. He received his Bachelor of Business Administration in Accounting from The University of Texas at San Antonio. He is a firm believer of supporting his community and the public accounting industry. As a result, David currently serves on the Board of Directors for the Texas Society of Certified Public Accountants San Antonio.
 
For further information on this topic or other tax questions please contact David at 210.733.6611 or dhigginbotham@atkgcpa.com.