SBA Issues New PPP Guidance for Partnerships & Self-employed

The SBA recently (4/14/2020) issued a new Interim Final Rule that supplements the guidance for the Paycheck Protection Program (PPP) included in the first interim final rule issued on April 2.

This new rule focuses on two areas that may  come into play when making a PPP application:

  1. Self-employment income of partners in a partnership
  2. Self-employed individuals

Self-employment Income of Partners

  • Self-employment income of partners in a partnership may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership (or LLC filing taxes as a partnership)
  • Individual partners may not submit a separate PPP loan application as a self-employed individual.
  • Partnerships that already applied for a PPP loan should immediately contact their lender to see what steps they should take to include payments to partners.

Self-employed Individuals

The additional guidance provides specific information on calculating the maximum loan amount for individuals with self-employment income who file a Form 1040, Schedule C, Profit or Loss From Business. The 2019 Form 1040 Schedule C is required to be provided with the PPP loan application, according to the interim rule, which notes that detailed documentation guidelines are also required.

The requirements to qualify for a PPP loan as a self-employed individual are:

  • You were in operation on February 15, 2020
  • You are an individual with self-employment income (such as an independent contractor or a sole proprietor)
  • Your principal place of residence is in the United States
  • You filed or will file a Form 1040 Schedule C for 2019

The SBA will issue additional guidance for those individuals with self-employment income who were not in operation in 2019 but who were in operation on Feb. 15, 2020, and will file a Form 1040 Schedule C for 2020.

PPP Status

According to the American Bankers Association’s April 12th report, $205 billion of the $350 billion appropriated for Paycheck Protection Program (PPP) loans has been claimed. This number presumably represents applications that banks have processed and that have been approved through the Small Business Association (SBA). Approval by the SBA occurs before the loans are actually documented and funded.

The CARES Act established the PPP as a new 7(a) loan option overseen by Treasury and backed by the SBA, which is authorized to provide a 100% guarantee to lenders on loans issued under the program. The full principal amount of the loans and any accrued interest may qualify for loan forgiveness if the borrower meets requirements related to having employees on payroll.

US Treasury is updating its FAQs to reflect changes as they are happening.

Please contact your HW&Co. advisor with any questions you have, or if there is any way we can be of assistance.