In the chaotic initial weeks of the COVID-19 pandemic, millions of small businesses (including many specialty practices) in the U.S. found themselves forced to close their doors. To retain staff and avoid furloughs, many specialty practices had no choice but to submit applications to secure Paycheck Protection Program (PPP) loans, offered by the Small Business Administration (SBA), that would make it possible for them to keep paying their employees during a period when revenue was reduced to almost nothing.
COVID-19 hit the healthcare industry especially hard in the early days of forced closures and suspended elective procedures. While the majority of hospitals continue to struggle, most specialty practices have at least somewhat recovered by employing new tools and processes that have allowed them to keep seeing patients safely, such as telehealth, online check-in, virtual waiting rooms, etc. Some specialty practices have even reached a point in their recovery where they may now be ready to submit for PPP loan forgiveness and begin repaying the balance. This means they will need to submit evidence of certain eligible expenses that were paid for by using funds from the PPP loan that will not have to be repaid to the lender as part of their final loan balance.
In order to better assist those who received PPP loans in what their next steps should be, the SBA recently published PPP Loan Forgiveness Application Instructions for Borrowers. In this blog, we will go over some of the highlights. For a detailed FAQ, readers should refer to the SBA's PPP Loan Forgiveness FAQ document.
General Loan Forgiveness Highlights:
- All PPP lenders may accept scanned copies of signed loan forgiveness applications and documents containing the information and certifications required by SBA Form 3508, 3508EZ, or lender equivalent. Lenders may accept any form of E-consent or E-signature that complies with the requirements of the Electronic Signatures in Global and National Commerce Act (P.L. 106-229).
- As long as a borrower submits a loan forgiveness application within ten months of the completion of the Covered Period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA. If the loan is fully forgiven, the borrower is not responsible for any payments. If only a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance due on the loan must be repaid by the borrower on or before the maturity date of the loan.
- Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. The borrower is responsible for paying the accrued interest on any amount of the loan that is not forgiven. The lender is responsible for notifying the borrower of remittance by SBA of the loan forgiveness amount (or that SBA determined that no amount of the loan is eligible for forgiveness) and the date on which the borrower’s first payment is due, if applicable.
- Borrowers may submit a loan forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination.
Loan Forgiveness Payroll Costs Highlights:
- Payroll costs that were incurred during the Covered Period or the Alternative Payroll Covered Period, but paid after the Covered Period or the Alternative Payroll Covered Period, are eligible for loan forgiveness if the payroll costs are paid on or before the next regular payroll date after the Covered Period or Alternative Payroll Covered Period.
- Payroll costs that were incurred before the Covered Period but paid during the Covered Period are eligible for loan forgiveness.
- Payroll costs include all forms of cash compensation paid to employees, including tips, commissions, bonuses and hazard pay. Note that forgivable cash compensation per employee is limited to $100,000 on an annualized basis.
- The gross amount should be used when calculating cash compensation.
- Employer expenses for employee group healthcare benefits that are paid or incurred by the borrower during the Covered Period or the Alternative Payroll Covered Period are payroll costs eligible for loan forgiveness.
- Forgiveness is not provided for expenses for group health benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period.
Loan Forgiveness Nonpayroll Costs Highlights:
- Eligible business mortgage interest costs, eligible business rent or lease costs and eligible business utility costs incurred prior to the Covered Period and paid during the Covered Period are eligible for loan forgiveness.
- Nonpayroll costs are eligible for loan forgiveness if they were incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.
- Payments of interest on business mortgages on real or personal property (such as an auto loan) are eligible for loan forgiveness. Interest on unsecured credit is not eligible for loan forgiveness because the loan is not secured by real or personal property.
- While interest on unsecured credit incurred before February 15, 2020 is a permissible use of PPP loan proceeds, this expense is not eligible for forgiveness.
- If a lease that existed prior to February 15, 2020 expires on or after February 15, 2020 and is renewed, the lease payments made pursuant to the renewed lease during the Covered Period are eligible for loan forgiveness.
- If a mortgage loan on real or personal property that existed prior to February 15, 2020 is refinanced on or after February 15, 2020, the interest payments on the refinanced mortgage loan during the Covered Period are eligible for loan forgiveness.
- A service for the distribution of transportation refers to transportation utility fees assessed by state and local governments. Payment of these fees by the borrower is eligible for loan forgiveness.
- The entire electricity bill payment is eligible for loan forgiveness (even if charges are invoiced separately), including supply charges, distribution charges and other charges such as gross receipts taxes.
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