[Updated 7/10/2020] Two important new items of note:
- Congress and the President extended the deadline for PPP loans to August 9, 2020. This means that if you have not previously been approved/received a PPP forgivable loan, you can still apply. We are strongly urging our doctors to take advantage of this program, as there are over $130 billion remaining of these forgivable loans. Remember, the loan is only 1% and the requirements for forgiveness are not a stretch (see information below, including the newly broadened forgiveness rules passed by Congress in early June).
- Colorado has created a COVID-19 Business Resources page here.
Note: Some details have changed in the final ruling: the interest has increased to 1% (instead of 0.5%), references to employees appear to be consideration of full-time equivalent employees, and some more confusion regarding those who are attempting to obtain both the PPP and the EIDL loans. Please see the information below for more explanation. Additionally, note the information at the end of this section regarding banks.
There was an important section in the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) passed by Congress last Friday (3/27/2020) that provides for SBA loans that ultimately can be forgivable. Most people refer to this section as the “Paycheck Protection Program.” At this point, the Small Business Administration (SBA) has until April 11 to establish the regulations or rules for this act, which will be necessary to answer some additional questions and to begin the loan application process.
These loans will have different requirements than those found in most SBA rules. Some requirements are more restrictive, and some are significantly loosened. The information below is based on our understanding of the law now and may be adjusted based on new information and the release of regulations by SBA.
How the CARES loan different than typical SBA loans and the basic CARES loan requirements:
· Do NOT have to prove that you cannot receive credit from other sources. This is a typical SBA requirement, but it appears this has been removed for these loans.
· NO personal guarantee will be required.
· 100% guaranteed by the federal government.
· No federal government guarantee fees or prepayment fees.
· The borrower MUST make good faith certifications that they have been impacted by COVID-19 AND will use the funds to maintain payroll and other debt obligations. This language includes, i) “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient; (ii) acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payment, and utility payments”; and no other SBA loans applications are pending.
· Must have fewer than 500 employees.
· Funds must be used to cover payroll costs, benefits and leave, mortgage interest, rent, and utilities.
· Interest is capped at 4%, although SBA has indicated that the interest will be only 1.0%. (they previously indicated only .5%, but increased it in the final rule)
· The borrower can defer payments (including the low interest) between 6-12 months. However, SBA has fixed the deferral timeframe to 6 months.
· The loans will be for 2 years.
· The amount of the loan can be up to the average monthly payroll from 2019 times 2.5 (i.e. 2019 total payroll expenses are $240,000, then 240,000/12 = 20,000 x 2.5 = $50,000 maximum). However, the loan amount is reduced by any amounts paid to individuals greater than $100,000.
· $1 million loan amount maximum.
· Section 1106 of the Act, titled “Loan Forgiveness,” provides that the Government will forgive up to the original principal amount of a loan under the Act that a recipient can document was used to pay: (1) payroll costs; (2) mortgage interest; (3) rent and (4) utilities—in each case for up to eight weeks following the issuance of the loan. Additional details:
· Like the loan amount, the forgiveness will be proportionately reduced for salaries greater than $100,000.
· Each of these documented expenditures for utilities, lease payments, mortgage interest must have been in place prior to 2/15/2020 (i.e. no mortgage interest can be included if the mortgage began on 2/25/2020).
· Employees must remain employed through the end of June.
· Employee pay cuts greater than 25% will reduce the forgiveness proportionately.
· [Updated 5/5/2020] The SBA recently changed their information sheet and removed the specific information regarding full-time equivalent hours. See the next bullet for that information. According to the SBA, forgiveness requires the following:
· “Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
· Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
· Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020. “
· The CARES Act provision regarding full-time employees references previous IRS code (26 U.S. Code § 4980H(c)(4)(a)) that states “The term ‘full-time employee’ means, with respect to any month, an employee who is employed on average at least 30 hours of service per week.”
[Updated 5/4/2020] SBA and the Treasury Department released more information on the PPP loan forgiveness on 5/3/2020 and they answered questions that many of our doctors have. The clarification came in the form of a FAQ:
“Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.”
Based on this information, it appears that employees that refuse to return to work will not count against an employer for PPP loan forgiveness if the offer to return to work was:
· Made in good faith,
· In writing, and
· Employee’s rejection is documented by the employer (does not indicate signature required from the employee, just documented).
· If you have already laid-off employees, you can re-hire them once the loan is disbursed and count them toward the calculation.
· The loan forgiveness is not taxable income.
· SBA has indicated they would have a process in place by Friday, April 3, 2020.
PPP + EIDL:
· It appears that you can apply NOW for an Economic Injury Disaster Loan Assistance (EIDLA) and then later apply for the Payroll Protection Program loan. If you choose this option, it appears you have two options:
· Re-finance the EIDLA loan into the PPP loan, or
· Use the EIDL loan (including $10,000 “advance”) for expenses NOT used to account for the forgiveness of the PPP loan.
· It is unclear if both will be available after April 3, 2020, or if only the borrower would have to choose between the two programs. We anticipate this will be addressed soon by SBA and the Treasury Department.
What can you do now while waiting for the process to be finalized (i.e., for applications to be made available)?
· Start gathering documentation for application while waiting for the process to finalize. This would include payroll information for 2019. This includes ALL payroll expenses, such as health benefits, retirement benefits, etc. Include everything, and you can negotiate with the bank as to what, if any, they will exclude. In addition to payroll information, gather documents showing mortgage interest, rent, and utilities in place prior to 2/15/2020. See the information and links below.
SBA released more information on this program on their dedicated site. Additionally, they released the application that could be used to get ready for the actual release and start date which they have indicated will be Friday, April 3, 2020:
· Fillable application for use in preparation
If you are considering this loan, please speak with your local bank NOW to determine your next steps and proper timing for your situation and practice. Remember, this program begins on April 3, 2020, and has limited funds.
Some local banks are ONLY assisting current banking customers. Please check with your local bank soon to determine their policies and allow for time to find another potential lender to work with on the PPP.