The Treasury Department released additional guidance on April 6, 2020. See our April 7, 2020 article outlining the key clarifications affecting your practice at “How to Get the Maximum Paycheck Protection Program (PPP) Loan Legally Possible.”

The government (SBA) is acting faster than expected! And no, that’s not an April Fool’s joke!

In our article published March 31, 2020, "7 Steps To Handle Your Staffing Issues Under The CARES Act," we relayed that the SBA had advised it could be 2-4 weeks before Paycheck Protection Program (PPP) loan applications were accepted and funded. Today, we learned that PPP loan applications will be accepted by SBA Preferred Lenders as early as Friday, April 3.

Some firms have advised doctors to wait to apply for PPP loans until the practice is back up and running, but prior to the June 30 deadline when the PPP expires. However, the SBA has advised that funding for these forgivable PPP loans is capped at $349 billion, and they expect this amount to be exhausted quickly. So, if you to wait to apply, you may lose out!

Accordingly, we recommend that you apply as soon as your SBA certified lender begins accepting applications. So, start completing the PPP loan application form.

Rehiring Your Staff

The PPP loan amount can be forgiven tax-free, to the extent the loan proceeds are spent on payroll costs, mortgage interest, rent, and utility payments within the 8-week period after receiving the loan proceeds. Any amounts not so spent, must be repaid. While loan payments will be deferred for 6 months, interest accrues at a 0.50% fixed rate, and the remaining loan balance must be repaid within 2 years, not 10 years, as originally proposed.

The most recent SBA guidance indicates no more than 25% of the forgiven amount may be used for non-payroll costs (rent, mortgage interest, utilities, etc.) And forgiveness is based on the practice maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if your full-time headcount declines, or if salaries and wages decrease. Accordingly, it’s best to rehire all furloughed staff back no later than the date that the PPP loan is received, so you’ll qualify for the full benefits and forgiveness, and no amount will remain at the end of 8 weeks that must be repaid.

What happens if the proceeds are spent at the end of eight weeks and your practice still is not operating at normal levels? Given this is an election year, we expect the PPP program to be extended and receive additional funding, if the pandemic continues to curtail business operations. If additional funding is not provided, and you’re unable to resume normal operations at that time, you can then furlough staff so they can receive unemployment benefits.

Qualifying for the Maximum Loan Amount

The PPP loan amount is capped at 2.5 times your average monthly payroll costs. While it hasn’t been confirmed, we expect the calculations to be based on your financial information from the 2019 tax (calendar) year, so that all amounts entered can be tied to the W-2s your practice issued, payroll tax returns your practice filed, and practice retirement plan reports received for that time period. In order to qualify for the maximum loan amount, you need to understand what’s included in “total payroll costs.” This includes not only salaries and wages (salaries and wages subject to $100,000 limit per employee) paid for the staff, doctors, employee associates, and family members, but also employee benefits including vacation, medical, sick, and family leave, group health benefits, including health insurance premiums, medical reimbursement, HRA reimbursements, and contributions by the practice to staff HSA accounts, retirement plan contributions, as well as state and local taxes paid by the practice on the compensation, including unemployment. In order to assure that you qualify for the maximum loan amount, perform the necessary calculations using our updated loan calculator, revised on April 7, 2020, based on additional guidance from the Treasury Department (also see "How to Get the Maximum Paycheck Protection Program (PPP) Loan Legally Possible").

Template Calculator for PPP Loan (download Excel file)

Example Calculation for PPP Loan

Other Matters

Previously, when it appeared there would be a significant delay in PPP funding, we had recommended doctors apply for an SBA Economic Injury Disaster Loan (EIDL) immediately. Since PPP funding has been accelerated, that’s no longer necessary.

In addition, the PPP application form asks if the practice has received an SBA EIDL loan before April 3, 2020. While we understand that an EIDL loan may be rolled into a PPP loan at a later date, it’s unclear whether obtaining the EIDL loan first might disqualify the practice from receiving the PPP loan, and thus we would not pursue EIDL funding now. Once you receive PPP funding and the rules are clearer, you may be able to also obtain EIDL funding for working capital at a later date.

Unfortunately, there’s still much uncertainty about the terms and conditions of this record economic stimulus plan, and changes are occurring at a dizzying pace. We will provide further updates as additional details emerge.

NOTE: The Treasury Department released additional guidance on April 6, 2020. See our April 7, 2020 article outlining the key clarifications affecting your practice at “How to Get the Maximum Paycheck Protection Program (PPP) Loan Legally Possible.”

Updated April 7, 2020. Originally published April 1, 2020.