Small Business Administration Assistance for Family Physicians During COVID-19
Updated July 7, 2020
PPP Application Window Extended
On July 4, President Trump signed an extension of the application period for small businesses to request a Paycheck Protection Program (PPP) loan. The application period was set to expire on June 30, but businesses will now have until Aug. 8 to apply.
The PPP was launched in April to provide forgivable loans to small businesses that have been hard-hit by the COVID-19 pandemic to cover payroll and other costs.
Rules for Forgivable PPP Small Business Loans Are Relaxed
On June 5, President Trump signed the Paycheck Protection Program (PPP) Flexibility Act into law. The law relaxes some of the rules that many small businesses found concerning when seeking loan forgiveness.
The new law gives small businesses up to 24 weeks (instead of eight weeks, as originally provided) to use the emergency PPP loans and still qualify for forgiveness. The legislation also reduces the threshold for required spending on payroll costs to 60% (down from 75%), thereby increasing the amount that can be spent for other expenses, from 25% to 40%. Other expenses include mortgage interest, rent, and utilities (not PPE).
In other provisions of the law, businesses now have until December 31, 2020, to rehire workers in order for their salaries to count toward forgiveness (as opposed to June 30) and are given protection from reductions in loan forgiveness if they cannot find qualified employees to hire or rehire by December 31, 2020. Finally, borrowers now have five years (rather than two) to repay the loan, at 1% interest.
The CARES Act established several new Small Business Administration (SBA) programs to address the COVID-19 outbreak. Find them below:
Economic Injury Disaster Loan and Loan Advance
At this time, only agricultural business applications are being accepted for EIDL loans due to limitations in funding availability and the high volume of applications already received.
Those who have already submitted applications will continue to be processed on a first-come, first-served basis.
The Paycheck Protection Program(www.sba.gov) (PPP) is a new, temporary loan program authorized under the CARES Act, administered through the Small Business Administration, and designed to provide a direct incentive for small businesses to keep their workers on payroll. The last day to apply for a PPP is Aug. 8, 2020.
The PPP provides each small business a loan of up to $10 million for payroll and certain other expenses. The loan amounts will be forgiven as long as the loan proceeds are used to cover payroll costs, mortgage interest, rent, and utility costs over the eight-week period after the loan is made, with employee and compensation levels maintained.
Small businesses and sole proprietorships can apply with private lenders beginning April 3, 2020. Independent contractors and self-employed individuals can apply beginning April 10, 2020.
If you haven’t applied, you need to act quickly. It’s best to apply with a lender you have a relationship with to help expedite the process.
If you have already submitted an application, please check with your lender to determine the status of your application.
Who is eligible for the Paycheck Protection Program?
- Businesses with 500 or fewer employees whose principal site is in the U.S.
- Nonprofits, veterans organizations, tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors are eligible.
Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries.
Other eligibility requirements:
- Must have been in operation on February 15, 2020.
- Must certify in good faith that they meet specified eligibility and use requirements of the program, that the current economic conditions make the loan necessary, and to the accuracy of documentation submitted (subject to fines and imprisonment).
- Eligibility determinations are not based on ability to repay, and businesses won't need to provide a personal guarantee or collateral.
- If you receive an EIDL from January 31, 2020, through April 3, 2020, you can apply for a PPP loan. If you didn’t use the EIDL for payroll costs, it will not affect your PPP loan. If you did use your EIDL for payroll costs, your PPP loan must be used to refinance your EIDL. If you received a $10,000 advance on your EIDL, it will be deducted from the loan forgiveness amount of the PPP loan.
- Priority is given to underserved, rural, and veterans’ markets, and businesses owned by socially and economically disadvantaged individuals, women, and businesses less than two years old.
What can the money be used for?
The loans can be used for payroll costs, mortgage interest payments, rent payment on leases, utilities, interest on other existing debt (incurred prior to February 15, 2020), and refinancing an SBA EIDL.
Payroll costs include:
- compensation to employees (whose principal place of residence is in the United States) in the form of salary, wages, commissions, or similar compensation;
- cash tips or equivalent;
- payment for vacation, parental, family, medical, or sick leave;
- allowance for separation/dismissal;
- payment for employee benefits including insurance premiums and retirement;
- payment of state and local taxes assessed on compensation.
For independent contractors, sole proprietors, or self-employed persons, payroll costs include wage, commissions, income, or net earnings.
PPP Loan Parameters
- The total amount per loan is capped at $10 million. The interest rate is 1%. The loan will be due in five years. Payments are deferred for six months, but interest will accrue from the date of disbursement.
Catalyst Health Network SBA PPP Calculator
Catalyst Health Network has developed a calculator to help practices determine the amount of loan they would qualify for under the Paycheck Protection Program.
The maximum amount of each loan is 2.5 times average monthly payroll costs during the year prior to the loan date. (For businesses not in operation in 2019, the average total monthly payroll costs are determined based on January and February 2020.)
Payroll costs will be capped at $100,000 annualized for each employee and/or for sole proprietors, independent contractors, and self-employed individuals. Compensation in excess of $100,000 per employee/sole proprietor/independent contractor is excluded.
- Independent contractors do not count as employees for the PPP loan calculation and should apply on their own for a PPP loan.
- There are no fees payable by borrowers. All pre-payment penalties are waived.
- Only one PPP loan is allowed per borrower (so consider applying for the maximum amount).
- A loan under the Paycheck Protection Program makes the borrower ineligible for the Employee Retention Tax Credit made available under the CARES Act.
PPP Loan Forgiveness
The PPP loan can be forgiven up to the full principal and accrued interest if the borrower uses all of the loan proceeds for forgivable purposes and employee and compensation levels are maintained.
Loans can be used for payroll costs, mortgage interest, rent payments on leases, and utility payments over the 24-week period following the date of the loan. However, at least 60% of the forgiven amount must be used to cover payroll costs; not more than 40% of the loan forgiveness amount can be attributable to nonpayroll costs.
The amount forgiven will be reduced if the business has had employee layoffs or reductions to employee salaries and wages.
- Number of staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount (FTEs).
- Level of payroll: Your loan forgiveness will be reduced if you decrease salaries and wages by more than 25% for any employee who makes less than $100,000 annualized in 2019.
- Rehiring: You have until December 31, 2020, to restore your full-time employment and salary levels for any changes made between February 15 and April 26, 2020.
- Borrower protection: Borrowers are given protection from reductions in loan forgiveness if they cannot find qualified employees to hire or rehire by December 31, 2020.
How to request PPP loan forgiveness
Submit a request to the lender that is servicing the loan. The SBA has revised the existing Loan Forgiveness Application(www.sba.gov) form and added a new EZ Loan Forgiveness Application(www.sba.gov) form.
The request will include documents that verify the number of full-time-equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations.
You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The SBA has clarified that any borrowers that received PPP loans with an original principal amount of $2 million or less are deemed to have made the loan request in good faith. The SBA established this safe harbor because such borrowers are unlikely to have adequate sources of liquidity. The SBA will focus on larger loans for audit purposes.
The lender must make a decision on the forgiveness within 60 days.
Additional resources include: