On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020. This new law significantly changes the rules of PPP forgiveness, allowing most borrowers to receive maximum forgiveness. As has been the norm, we expect more guidance and changes to come. We will continue to stay on top of any changes and keep you updated. In the meantime, here is a summary of the new bill and how it applies to dental/medical practice owners.
What changed with the new law?
Extension of covered period
The new law extends the “covered period” for PPP forgiveness to 24 weeks. This means you now have 24 weeks from the date your PPP loan was funded to use the funds on covered expenses (payroll, rent, mortgage interest and utilities); however, this period may not extend past December 31, 2020.
Minimum amount used on payroll
According to the law, a minimum of 60% of your loan forgiveness amount must be used on payroll costs (down from 75% previously). However, the calculation for the PPP loan amount was equal to 2.5 times average monthly payroll; as such, we expect that nearly all dentists will spend more than the total PPP loan amount on payroll over a period of 24 weeks, making the payroll limitation irrelevant in most cases.
Deadline for Restoring Staff Levels
Previous SBA guidance had indicated that re-hiring (or offering to re-hire) pre-pandemic staff by June 30 would exempt employers from any reductions in forgiveness. The new law maintains this exemption, and extends the deadline for restoring staff levels to December 31. In short, if your full staff is back by December 31, 2020, your forgiveness amount will not be reduced.
What do I need to do to ensure the full PPP loan is forgiven?
Our consistent advice has been to run your business, post COVID-19, based on the economic needs of the business. This advice has turned out to be the best course of action and is still our advice.
To avoid a reduction in forgiveness, offer to rehire all your employees who were employed on February 15 to come to work with the same pay and hours prior to December 31, 2020.
If any of your employees decline your offer, please be sure to maintain written documentation of both your offer and the employee’s rejection of the offer, showing evidence of the employee’s refusal to work (email, signed letter, or text will work).
In addition, you must do one of the following:
- Attempt to hire a similarly qualified employee to fill the vacant position. If you are unable to do so, then you must document your attempt to obtain full forgiveness.
- Leave the position vacant and document that you were unable to return to the same level of business activity due to requirements or guidance issued by the Secretary of Health and Human Services, the CDC, or the Occupational Safety and Health Administration.
I’ve already spent most of the PPP loan? What should I do now?
Just keep running your business, serving your patients, to the best of your ability.
Should I continue to defer interest on my Practice loan?
We expect that the PPP will be fully forgiven by payroll costs alone (you have 24 weeks to spend 2.5 months’ worth of payroll costs). Therefore, paying the interest accruing on your debt is solely a question of cash flow. We recommend that you pay all interest accrued during your deferral period. If your bank has not been accruing your interest, there is nothing for you to do now. For everyone that is back to work, start making your normal debt payments when the bank stops your deferral period.
What happens if a portion of my loan is not forgiven?
Any amount that is not forgiven can be converted to a loan with maturity of up to 5 years with and 1% interest rate. This will apply to any practice which does not use the full PPP Loan amount, or any owners who received the EIDL grant and did not reduce the PPP loan amount by the amount of EIDL proceeds ($10,000 or less). For the vast majority of dental practice owners, however, we expect that the full loan will be forgiven.
When and how will we start to apply for forgiveness?
The banks will be responsible for initiating the forgiveness application – stay in contact with the bank which serviced your PPP Loan. When that time comes, PFG will help our clients gather the necessary information and calculations to apply. Right now, we do not anticipate doing this until your 24-week covered period is over. The new law allows 10 months after your 24-week covered period to apply for forgiveness. If you have any amount that is not forgiven, you will start making loan payments once your forgiveness is approved.
The PFG team is staying on top of new information and guidance daily. Some Senators have discussed implementing more tweaks to the PPP process, and the SBA continues to issue guidance as new laws change the landscape of PPP forgiveness. We will continue to stay current on all changes and update our clients with the most relevant information as it becomes available.
As has been our consistent advice throughout this crazy process, we recommend you run your practice, including hiring your employees, based on the needs of the practice and your ability to do so safely in your specific location – do not let the PPP loan and the desire for forgiveness dictate how you run your business.
If you have any questions regarding PPP forgiveness or the application process, please contact your planning team. We will be happy to answer any questions you have!