8 Strategies To Maximize The Benefits Of Your PPP Loan And Forgiveness

May 2020 ISSUE May 1, 2020
Practice Management Financing
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As more practices begin receiving Paycheck Protection Program (PPP) loan proceeds, their questions turn to how to achieve maximum loan forgiveness. Unfortunately, getting your PPP loan forgiven in full isn’t as easy as it sounds.

Below we’ll discuss 8 steps to help you avoid serious traps and get the best results.

Your practice has 8 weeks to spend PPP loan proceeds on payroll costs, mortgage interest, rent and utilities (electricity, gas, water, transportation, telephone, and Internet access) to be eligible for full forgiveness. Any portion of the PPP loan that isn’t forgiven must be repaid within two years. However, the terms are very favorable, with a 6-month deferral period and interest charged at a rate of only 1%.

Unfortunately, many practices have closed their doors, offering only emergency services since they are subject to a stay-at-home or shelter-in-place state order. As a result, practice owners who have received a PPP loan are faced with the realization that in order to achieve full forgiveness, they will need to call their employees back from furlough and begin paying them as soon as possible. While that sounds simple, in reality it’s not.

Given the supplemental federal unemployment benefits of $600 a week, your employees may be making more money by NOT working than they would be paid by your practice FOR working. Accordingly, they may decide collecting unemployment is more lucrative. As a result, don’t count on all of your employees coming back to work when you ask them to. At least not until their generous unemployment benefits run out.

Many doctors hoped they would have flexibility in choosing the 8-week period, allowing them to wait until the shelter-in-place or stay-at-home orders were lifted before asking their employees to return to work and maximize the payroll that would be incurred during that time period, and by extension, the subsequent debt forgiveness. Unfortunately, that won’t be the case. The SBA recently clarified that the 8-week period begins on the date that the borrower receives the loan proceeds, and that disbursement cannot be delayed at the option of the borrower, as the bank is required to make the disbursement within 10 days of receiving SBA loan approval. As a result, the 8-week clock starts immediately upon receipt of the PPP funds, regardless of whether your practice has resumed operations.

Some doctors have decided if they don’t have employees to pay, they’ll just use the proceeds to make huge rent payment to themselves and salary payments to themselves and family members. Unfortunately, the SBA has changed the rules, so that no more than 25% of the forgivable amount of the PPP loan can be attributable to non-payroll costs including rent, mortgage payments and utilities. As a result of this 25% limitation, the practice must maintain its payroll costs over the 8 weeks at its pre- pandemic pace, in order to achieve full forgiveness.

While we are awaiting final loan forgiveness rules from the SBA, here are 8 strategies to help you get the best result.

  1. Once you’ve been notified by your lender that your PPP loan has been approved, wait until the 10th calendar day after loan approval to sign and return your loan documents in order to delay receipt of the proceeds for as long as possible while your practice is not operating.
  2. Deposit the full PPP loan proceeds into a separate bank account. Thereafter, transfer funds from the PPP account into your operating account to reimburse for qualifying expenses (payroll, rent, mortgage interest, utilities, etc.) as paid.
  3. Maintain a separate PPP loan file to accumulate all necessary records. At the end of the 8-week period following funding, you must submit a request to your lender for loan forgiveness. In addition to the required borrower certification, you must submit the documentation necessary to prove your payroll costs paid, including payroll records and quarterly payroll tax returns (Form 941), along with evidence of practice-paid group health expenses (i.e. cancelled check, health insurance premium invoice, etc.) and retirement plan contributions made (cancelled check or draft). You also need to document amounts spent on business rent and utilities (invoice and cancelled check), and business mortgage interest (cancelled check and loan statement).
  4. Reimburse your operating account for qualifying expenses that were paid earlier in the month during which you received the PPP loan proceeds. For example, if your PPP loan was funded on April 15, reimburse for 50% of all qualifying expenses such as health insurance premiums, rent, etc. that were paid earlier for the entire month.
  5. Reimburse the operating account for your estimated retirement plan contributions for 2020 based on multiplying the practice-paid contributions (excluding salary deferrals) for 2019 by .1538 (8 weeks divided by 52 weeks).
  6. Limit payroll reimbursement for the doctor and other highly compensated employees earning over $100,000 annually to no more than $1,923.08 a week ($100,000 annually).
  7. Restore the total number of full-time equivalent (FTE) employees and their pay back to pre-pandemic levels on or before June 30, 2020 to avoid a reduction in loan forgiveness. Bringing your furloughed employees back as soon as possible after the PPP loan is funded is recommended, in order to maximize the loan forgiveness available for non-payroll items, which can comprise only 25% of the amount forgiven.
  8. On the last day of your 8-week period, run payroll and pay all other remaining qualifying expenses that have been incurred in order to maximize the amount of loan forgiveness. For example, if your PPP loan is funded on May 13, run a final payroll on the last day of the 8-week period (July 8) to capture the remaining payroll costs for the 8-week period. Consider paying a bonus to your spouse, children and/or staff for additional services rendered to the extent necessary so that at least 75% of PPP proceeds are paid out for payroll costs by the end of the 8-week period.

Once the SBA issues final loan forgiveness rules, we will update this article to provide additional strategies.

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