Paycheck Protection Loans
The Coronavirus Phase III Response Legislation passed on March 27, 2020 created the Paycheck Protection Program, which allows for $350 billion for 100% federally guaranteed, zero-fee loans, up to $10 million, to small businesses to maintain up to 24 weeks of existing workforce and help pay for other expenses like rent, mortgage, and utilities. On April 24, an additional $321 billion in funding was approved. Payroll costs are capped at $100,000 on an annualized basis for each employee.
Who is eligible for this program?
A small business that employs less than 500 employees who reside in the US; or
A business that meets the SBA employee-based or revenue-based size standard corresponding to its primary industry (visit www.sba.gov/size for standards); or
A business that meets both tests in the SBA’s “alternative size standard” as of March 27, 2020: (1) maximum tangible net worth of the business is not more than $15 million; and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million.
How should I calculate number of employees and payroll costs for a maximum loan?
In general, calculate the aggregate payroll costs using data either from the previous 12 months or from the calendar year 2019. Note, payroll costs are not reduced by federal taxes imposed or withheld from employee, but employer-side federal payroll tax imposed on wages are excluded from payroll costs under the statute.
You can use the same time period noted above to determine number of employees or use the SBA’s calculation as found on their web site.
When can I apply?
Dermatologists could begin applying for these loans on April 3, 2020.
Where do I apply?
Visit your local FDIC approved bank, credit union, or Small Business Administration (SBA) lender and fill out an application for paycheck protection. You will need to provide payroll documentation. If you are interested in applying through an SBA lender, find one in your state.
When is the deadline to apply?
You have until Aug. 8, 2020 to apply for this program.
What can I include in my loan?
Payroll costs include:
Salary, wages, commissions, or tips (capped at $100,000* on an annualized basis for each employee);
* The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits including employer contributions to retirement plans, payment for employee benefits including insurance premiums, and payment of state and local taxes.
Employee benefits including costs for vacation, parental, family, medical, or sick leave (excluding qualified sick and family leave wages allowed under the Families First Coronavirus Response Act); allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
State and local taxes assessed on compensation; and
For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
Interest on mortgage obligations, incurred before Feb. 15, 2020;
Rent, under lease agreements in force before Feb. 15, 2020; and
Utilities, for which service began before Feb. 15, 2020.
For additional guidance, see this Fact Sheet.
What is the maximum amount I can receive in my loan?
Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount, and the total amount is capped at $10 million.
How do I apply for my loan to be forgiven?
A borrower must apply for loan forgiveness through the lender that processed the original loan.
There are two forms (along with their corresponding instructions) available for borrowers to use when filing a PPP forgiveness request with their lender. Both applications give borrowers the option of using the original 8-weeks covered period (if the loan was made before June 5, 2020) or an extended 24-weeks covered period. Borrowers using either forgiveness application form will be required to disclose the number of employees at the time of the forgiveness application. Choose the appropriate form that best meets your practice situation and review the guidance and instructions details when preparing your forgiveness request:
SBA Form 3508EZ Forgiveness Application (PDF download)
Loan Forgiveness Application Form EZ Instructions (PDF download)
SBA Form 3508 Full Forgiveness Application (PDF download)
Loan Forgiveness Application Instructions (PDF download)
Due to the detailed nature of the application and related documentation needed, it is best to work closely with your accountant to maximize chances of approval.
What is the covered period for the loan forgiveness?
When applying for forgiveness, borrowers have the choice of covered period options—either the original 8-weeks (if their loan was made before June 5, 2020) or the extended 24-week covered period.
Calculating 8 weeks vs. 24 weeks
Your “loan forgiveness covered period” (168 days) is the 24-week period beginning on the date your PPP loan is disbursed; however, if your PPP loan was made before June 5, 2020, you may elect to have your loan forgiveness covered period be the eight-week period (56 days) beginning on the date your PPP loan was disbursed.
Covered periods: original 8-weeks vs. extended 24 weeks. June 5 is an important date marker for PPP borrower as it affects several aspects of the borrower’s loan:
Before June 5: For loans issued prior to June 5, 2020, a borrower can choose either the original eight-week covered period for purposes of forgiveness, or a 24-week period beginning on the date loan proceeds are received.
After June 5: For loans made after June 5, 2020, businesses will have 24-weeks from receipt of the loan in which to spend the proceeds to qualify for loan forgiveness.
Alternative Payroll Covered Period: This is for calculating and paying for payroll costs only. While the instructions define and detail this term, the key point is that because of timing variation between counting loan disbursement date vs. a business’s payroll cycle, not all borrowers’ payroll periods match up perfectly with the date when they receive their PPP funds. Under the Alternative Payroll Covered Period, the borrower can spend PPP funds and still qualify for full forgiveness. If you decide to use this, remember to report that whenever the application references covered period or the alternative payroll covered period; however, if the application states the covered period only, make sure you use that period.
What is the eligible amount for forgiveness?
All of the loan will be forgiven as long as you use it for payroll, mortgage interest, rent, and utilities over the 24-week time period that the loan is given. You will be required to pay back the loan if you do not maintain your staff and payroll or decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. You have until December 31, 2020 to restore your staff levels for any changes made between February 15, 2020 and April 26, 2020. If you meet the following criteria for any employees, that portion of the loan can also be forgiven:
is unable to rehire an individual who was an employee on or before February 15, 2020;
is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.
To maximize chances of receiving a full PPP loan forgiveness, the borrower must meet the prescribed cost ratio rule:
At least 60% of the loan amount is to cover payroll costs, including your own.
At most, the remaining 25% should be allocated to cover other permitted operating costs, including rent, utilities, health insurance, etc. Any money spent on non-qualifying expenses must be repaid after six months at an annual rate of 1% within two years.
Note, the IRS clarified on May 15, 2020 that if the PPP loan is used for expenses eligible for loan forgiveness, then those dollars are excluded from gross income; therefore, the business will not receive the benefit of deducting those expenses from federal income taxes.
The requirements for how to “demonstrate an inability” are not yet clear.
The amount of loan forgiveness is captured and detailed in the forms and instructions. Forgivable amount can be up to the full principal amount of the loan plus accrued interest. The actual amount of loan forgiveness will depend, in part, on the total amount spent over the covered period beginning on the date your PPP loan is disbursed.
Calculating covered periods
If your PPP loan was made before June 5, 2020, you may elect to have your covered period be the eight-week period beginning on the date your PPP loan was disbursed. In addition, under section 3(b)(1) of the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act), the covered period of any borrower will end no later than December 31, 2020.
The amount of loan forgiveness is capped by the full principal amount of the loan plus accrued interest. Note the following:
Individual salary cap increased for employees’ salaries from $15,385 during the 8-week covered period to $46,154 during the 24-week covered period.
Owner compensation increased from $15,835 during the 8-week covered period, to $20,833 for a 24-week covered period.
You may request partial forgiveness if you spent less than 60% of the loan funds on payroll costs. If less than 60% of the loan proceeds are spent on payroll costs, the forgiven amount will be reduced accordingly. In addition, the interest on PPP loans can now be deferred until the amount of loan forgiveness is determined.
What is the deadline for requesting forgiveness?
Borrowers must file their forgiveness request with their lender within 10 months after the end of their loan’s covered period. If so, the borrower will not have to make any payments of principal or interest on their loan before the date on which SBA remits to the lender the loan forgiveness amount on the loan (or notifies the lender that no loan forgiveness is allowed). If the borrower does not submit a loan forgiveness application to its lender by Oct. 10, 2021, the borrower must begin making payments on or after Oct. 10, 2021.
How long will it take to get a determination of approval?
The forgiveness approval processes will follow the following timetable:
60 days: After receiving application (submission date), the lender has 60 days to review forgiveness request and determine if all/any portion of the loan is eligible for forgiveness.
90 days: After that, the lender must submit its determination to the SBA, which in turn, has 90 days to review the loan and remit the eligible forgiveness value (full or partial forgiveness amount) to the lender.
SBA will use the 90-day period to help ensure that applicable legal requirements (to prevent fraud or misuse of PPP funds) have been satisfied.
The lender will then notify the borrower of the final decision.
Can I appeal the lender’s decision if not approved?
The borrower has the right to appeal the lender’s decision for the full or partial PPP forgiveness amount. The SBA will issue to issue a future interim final rule addressing the appeal process.
If my loan is not forgiven, how will it mature and what interest will I be charged?
Loan maturity will be triggered by the end of the covered period and depends on when/whether the loan was forgiven in full or in part:
Loans issued on or after June 5, 2020, mature in five years.
Loans issued before June 5, 2020, will continue to have a two-year maturity period for any portion of the loan not forgiven. Borrowers with a two-year term may seek to negotiate with their lender to extend the period to five years, subject to the lender’s discretion.
Borrowers can ask for an extension of the maturity date and lenders have the discretion to review each request for a loan modification on a case-by-case basis.
Interest will be at 1.0% fixed and all payments are deferred for 6 months; however, interest will continue to accrue over this time period.
Keep in mind SBA will disclose the business names, addresses, NAICS codes, zip codes, business type, demographic data, non-profit information, jobs supported, and loan amounts from $150,000 up to $10 million. These account for nearly 75% of the loan dollars approved. For loans below $150,000, totals will be released, aggregated by zip code, by industry, by business type, and by various demographic categories.
For PPP data disclosed to date, including total dollars approved, loan sizes, lender sizes and types, loans approved by state, top lenders, loans by industry sector, and funds remaining, access the June 12 SBA PPP Report (PDF download).
Review FAQs from the U.S. Treasury (PDF download). Additionally, the U.S. Chamber of Commerce has created a guide to PPP loan forgiveness (PDF download). It details the steps dermatologists should take to seek forgiveness for their PPP loans.
Additional COVID-19 business management resources
All content solely developed by the American Academy of Dermatology