SBA Guidance on PPP Forgiveness and EIDL Loans

The SBA continued to issue guidance this week to clarify Paycheck Protection Program (PPP) provisions.

The SBA’s Interim Final Rule (IFR) released on June 22 provided more information on the cap on loan forgiveness for owner-employees and self-employed individuals.

As discussed in our update last week, for sole proprietors, including farmers filing Schedule F, independent contractors and self-employed individuals, owner compensation replacement is capped at the lesser of 2.5 months of 2019 net profit (2.5/12), or $20,833. For a sole proprietor, independent contractor or self-employed borrowers using the 8-week covered period, this cap remains at the lesser of 8/52 of 2019 net profit or $15,385.

The IFR explained that these caps are applied to owner-employee compensation as follows:

  • C-corporations – Owner-employees are capped at the amount of their 2019 employee cash compensation not exceeding the amounts described above, and employer retirement and health insurance contributions made on their behalf.
  • S-corporations – Owner-employees are capped at the amount of their 2019 employee cash compensation not exceeding the amounts described above, and employer retirement contributions made on their behalf.  Employer health insurance contributions paid for owner-employees are not included.
  • General partners are capped at the amount of their 2019 net earnings from self-employment, reduced by the claimed IRC §179 deduction, unreimbursed partnership expenses, and depletion from oil and gas properties, multiplied by 0.9235, not to exceed the amounts above.
  • Self-employed individuals, including Schedule C or F filers and general partners, cannot include retirement and health insurance contributions in the payroll calculation.

Using PPP funds to refinance EIDLs

This week, the SBA also issued guidance on when a PPP loan can and cannot be used to refinance Economic Injury Disaster Loans (EIDLs).

A PPP loan must be used to refinance the full amount of an EIDL when the borrower received EIDL funds between January 31, 2020 and April 3, 2020 and used those funds to pay payroll costs. The amount of the EIDL to be refinanced does not include the amount of any EIDL advance, since that amount does not need to be repaid.

If the EIDL was received during these dates and used on non-payroll costs, the requirement to refinance does not apply.

An EIDL cannot be refinanced with PPP funds if the EIDL was received before January 31, 2020 or after April 3, 2020.

If you need assistance applying for a PPP loan or preparing for PPP forgiveness, please contact your Grassi advisor or our Crisis Response & Recovery hotline at 212.223.6216 or

Lou Pizzileo An accounting and advisory Partner at Grassi, Lou Pizzileo plays a key role serving the firm’s clients in the manufacturing and distribution, technology and specialty finance practices. Entrepreneurial minded, Lou recently led the firm’s efforts in assisting companies with capturing available stimulus provided by the CARES Act, including the Paycheck Protection Program. He also recently created and leads the firm’s IT accounting practice. Lou... Read full bio