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 June 30, 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 much of my loan will be forgiven?
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.
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.
Further, on June 5, 2020 a new law was passed that extended the deadline to rehire employees from June 30, 2020 to December 31, 2020 in order for their salaries to count toward the loan forgiveness. The law also states a business can still receive forgiveness on payroll amounts if it:
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.
The requirements for how to “demonstrate an inability” are not yet clear.
How do I apply for my loan to be forgiven?
You must apply using this application (PDF download) and submit the completed application (which includes the required PPP Loan Forgiveness Calculation Form and PPP Schedule (Schedule A)) to your lender or bank that you received the loan from.
The form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:
Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the 24-week period after receiving their PPP loan ; although, you do not have to wait for the 24 weeks to apply for forgiveness and can still do so after 8 weeks if you prefer
Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by December 31, 2020
Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined
PPP loans start and end in two phases, triggering the forgiveness period:
Round 1: runs roughly after April 3 through early to mid-June, with forgiveness starting thereafter.
Round 2: runs roughly from April 27 through end of June – early July, with forgiveness starting thereafter.
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.
If approved, all documentation must be retained by the borrower for six years after the date the loan is forgiven or repaid in full. The borrower must permit authorized representatives of SBA, including the Office of Inspector General, to access such files upon request.
The SBA will also soon issue regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.
If my loan is not forgiven, how much interest will I be charged?
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. The entire loan amount will be due in five years and there are no borrower or lender fees payable to SBA.
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