From the American Bankers Association at 8:52 am on April 25th:
With the Small Business Administration reopening its E-Tran system for Paycheck Protection Program applications on Monday morning, SBA last night issued guidance to help borrowers and lenders calculate and document the maximum PPP loan amount a business may be eligible for. The guidance covers several situations about which lenders have sought clarity.
The guidance addresses calculations and documentation requirements for applicants that are:
- Self-employed with no employees.
- Self-employed with employees.
- Self-employed farmers who report income on Schedule F.
- Partnerships.
- Subchapter S and C corporations.
- Nonprofit organizations.
- Eligible nonprofit religious organizations, veterans’ organizations and tribal businesses.
- Limited liability company owners.
“Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rules,” SBA added in the guidance. “The U.S. government will not challenge lender PPP actions that conform to this guidance and to the PPP Interim Final Rules and any subsequent rulemaking in effect at the time.”
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I have a partnership, there are two general partners each with 50%.
2019 Income from the K-1 is $50,000 * 0.9235 = $46,175. Divided by 12 = $3,847 to get average monthly payroll costs. And then multiplied by 2.5 = $9,619 for the loan amount.
We got a PPP loan from Radius Bank for $11,074.
Using the 8 week covered period, we are eligible for $46,175 in 2019 expenses / 52 weeks * 8 weeks = $7,104 in loan forgiveness. This is based on an 8 week covered period.
Since both partners are considered employee-owners of a partnership, we cannot claim the full forgiveness amount. Nor can we include health insurance or retirement plan contributions for employee-owners.
By my read, the loan amount is higher than it should have been. And since there are no employees and no non-payroll costs the business cannot get the loan fully forgiven. Does that all sound right?
It does sound like the initial PPP loan amount was incorrect, but I am not entirely sure of it based on the info you provided — you said the income from the K-1 was $50,000. Do you mean the income on Line 14A of all of the K-1s combined? That’s the number you should be looking at. (In a partnership where all partners are actively working for the company — rather than one or more being silent investors — you’ll see that the total of Line 14A for all partners, equals Form 1065, Line 10 (Guaranteed payments to partners) + Line 22 (Ordinary Business Income).)
If so, then yep, that initial loan was calculated incorrectly. And you’re correct that as a partner in a partnership you can’t add health insurance or retirement plan contributions.
However, please remember that if you use the 24-week period you get a higher owner compensation limit. Instead of 8/52 x 2019 income (with a cap of $15,385), it’s 2.5/12 x 2019 income (with a cap of $20,833). So you should be able to get pretty close if you take the full 24 weeks of owner compensation (limited by 24 weeks of 2019), plus rent and utilities. Good luck!