New Guidance on Paycheck Protection Program Issued by SBA and Treasury Department
Last week, the Small Business Administration (SBA) and the Department of the Treasury released additional guidance on several critical aspects of the PPP or the Paycheck Protection Program (PPP). This latest update addresses concerns related to loan limits for businesses with common ownership and the tax deductibility of expenses paid with Paycheck Protection Programloan proceeds, while also highlighting ongoing uncertainties regarding the SBA’s “necessity” criteria for loan applicants.
Key Updates:
1. Loan Limits for Businesses with Common Ownership relating to PPP: The new guidance stipulates that businesses with common ownership are now subject to a cumulative limit of $20 million in Paycheck Protection Program loans. This means the total amount of PPP loans a group of affiliated businesses can receive is capped at $20 million. This rule aims to ensure a more equitable distribution of PPP funds, particularly among small businesses that may not have access to extensive financial resources.
2. Tax Deductibility of PPP-Funded Expenses: A significant clarification was issued regarding the tax treatment of expenses paid with Paycheck Protection Program loan proceeds. According to the new guidance, expenses paid for using PPP loan funds are not tax-deductible. This clarification resolves an area of confusion for many businesses planning their tax strategies and underscores the importance of careful financial planning when utilizing PPP loans.
3. Ongoing Questions About PPP “Necessity” Criteria: Despite these clarifications, there remain unresolved questions regarding the SBA’s “necessity” criteria for PPP loan applicants. The necessity certification requires borrowers to attest that their PPP loan request is necessary to support ongoing operations in light of current economic conditions. However, the criteria for what constitutes “necessity” remain somewhat ambiguous, leaving some businesses uncertain about their eligibility and the potential implications of their certification.
These updates reflect the ongoing efforts by the SBA and the Treasury Department to refine and clarify the PPP, ensuring it remains a vital lifeline for businesses navigating the economic challenges posed by the COVID-19 pandemic. As the situation evolves, further guidance and adjustments are expected, and businesses are encouraged to stay informed and consult with their legal and financial advisors.
For more detailed information on these updates and how they may affect your business, please refer to our latest Client Alert. At Gesmer Updegrove LLP, we are committed to providing our clients with timely and relevant information to help them make informed decisions in these uncertain times. Please do not hesitate to reach out to our team for personalized advice and support.