The PPP free-cash program to assist businesses during the COVID-19 pandemic is gaining traction and clarity. If you operate your business as a partnership, several recent developments have made the free-cash program more to your benefit.
1. Partner’s Self-Employment Income Creates Cash and Forgiveness
Just as sole proprietors failed originally to ask for their PPP cash assistance, so did many partners.
Three things to note here:
- The partnership (not the individual partner) applies for the PPP loan.
- The deemed payroll amount that the partnership uses for the partners is their 2019 self-employment income (both guaranteed payments and ordinary income).
- If the partnership filed for the PPP loan based on its employees, but failed to include any dollar amount for the partners, the (SBA) in an interim final rule authorizes the lender to increase the loan amount for the appropriate partners’ deemed payroll inclusion that was left out of the original application.
2. Paid and Capped
Line 9 of the SBA official loan forgiveness application reads as below:
Line 9: Enter any amounts paid to owners (owner-employees, a self-employed individual, or general partners). This amount is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.
Note the word “paid.”
In general, payments to partners don’t occur in a pattern that would equal the amount needed during the eight-week covered period.
To protect the partnership’s forgiveness amount, make sure that payments to partners during the eight-week covered period equal the 8/52 of the partners’ deemed 2019 payroll. We have not seen a requirement on the “paid” part, but that word is there. So protect yourself.
Note. The newly enacted Paycheck Protection Program Flexibility Act of 2020 allows you to stay with the eight-week program or elect use of the new 24-week program as explained earlier.
3. Qualifying Non-Payroll Expenses
When explaining that the partnership had to file for the PPP loan and forgiveness, the SBA stated:
Rent, mortgage interest, utilities, and other debt service are generally incurred at the partnership level, not partner level, so it is most natural to provide the funds for these expenses to the partnership, not individual partners.
If your partnership has not applied for its PPP money, do it now. The SBA has plenty of money available for PPP loans at the moment, but you have to think it won’t last long.