Apr 1, 2020

PPP Loan, the Rules and Strategy, Top to Bottom (Revised 4/8/20)

Written By: Nate Williams

Paycheck Protection Program (PPP) Loan

Updates (4/8/20):

Right now, the big question for small business owners is: “When should I apply for the PPP Loan?” For updates on our recommendations surrounding the timing of the PPP loan, see our blog post here: When to Apply for the PPP Loan

Full Text:

The format of the content below is broken into two categories:

  1. The “Rules” of the loan – before you can play a game, you need to know the rules;
  2. The “Strategy” of the loan – once you know the rules, having the right strategy will determine if you win or lose the game.

Also, the information below is accurate at the time of this writing (4/8/2020); we expect the rules of this loan program to change. As the rules change, we will post updates here.


EIDL 7(a) or PPP Loan
Amount Up to $2,000,000 2.5x average monthly payroll costs, including benefits
Rate 3.75% max 0.5%
Where to apply? Sba.gov/disaster SBA-qualified lender
Grant or Forgiveness? Grant of up to $10,000 8-weeks of qualified expenses
Max term: 30 years 2 years
Collateral required? On loans over $25,000 No
OK if you have access to credit elsewhere? Yes Yes
Uses of the funds? Business operating expenses Payroll, rent, utilities
Cost to apply? Free Free
Prepayment penalty? None None


The “Rules” of the PPP Loan

What is the Paycheck Protection Program (PPP)?

This was part of the CARES Act. The PPP program authorizes up to $349 billion (for the whole country) intended to provide American small businesses with eight weeks of cash-flow assistance through 100% federally guaranteed loans.

What are some highlights of the program?

  • No cost to apply
  • Funding is intended to help retain workers, maintain payroll, cover rent, mortgage and utilities expenses (mortgage is defined as building mortgage, equipment loans or practice purchase loans)
  • All or a portion of the loan can potentially be forgiven and essentially turn into a non-taxable grant.

Can I apply for the PPP loan and the EIDL loan?


How do I apply for the PPP loan?

You will need to apply through an existing SBA 7(a) lender. Many lenders are already approved to issue 7(a) loans; we recommend you check with these banks first to inquire as to whether they are approved SBA 7(a) lenders:

  • The bank where you have your business checking account
  • A bank where you have existing loans or an existing relationship with a lender
  • A bank where you have borrowed money from in the past.
  • *You can also visit sba.gov for a list of SBA lender.

Where can I access the loan application?

You will need to check with your bank for an application. The Treasury Dept. put out this application (here), but each bank will have its own application process.

When is the deadline to apply for the PPP loan?

Per the Dept. of the Treasury, your banker needs to have the application processed by June 30, 2020.

What information will be needed to apply for this loan?

Your bank will likely ask for specific supporting documentation – the exact information may vary from bank to bank. However, some commonly requested documents are:

  • 2019 Payroll—use your 12/31/19 (or 12/20/19) MyPay “Payroll Report.”
  • Tax Form 941/W-3
  • 2019 1099 income paid to independent contractor doctors
  • Healthcare costs—all health insurance premiums paid by the business owner under a group health plan
  • Contribution summary – shows the amount contributed to retirement plans
  • *PFG will assist you in the collection of this information

How do I determine the loan amount I am eligible for?

If you are a PFG client, we have provided you with your loan amount. If you have any questions about this number, please reach out to your planning team. FYI, the maximum amount is 2.5 times your monthly “payroll costs” including the following:

  • Employee salaries, wages, commissions, etc. up to $100,000 per year ($8,333.33 per month) per employee
  • Payment for vacation, parental, family, medical or sick leave
  • Severance payments
  • Group health insurance
  • Retirement plan contributions
  • State and local taxes assessed on such compensation (i.e. Payroll Taxes)

What can the PPP loan proceeds be used for?

PPP funds are restricted in their use, regardless of forgiveness. You must acknowledge that the funds will be used for:

  • Payroll Costs, including benefits
  • Interest on mortgage obligations, incurred before February 15, 2020
  • Rent, under lease agreements in force before February 15, 2020
  • Utilities, for which service began before February 15, 2020

What counts as payroll costs?

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; 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.

Will the doctor’s pay be included in payroll costs?

Yes, all employees of the business are included, capped at $100,000 per year per employee.

If I am in a partnership, owned by an S-Corp, can I apply for this loan twice under both entities?

No. Our recommendation is to apply for this loan at the partnership and to include the doctor’s salary, capped at $100,000 annually ($8,333.33 per month).

One of the “certifications” required to apply for the loan is that the applicant (the doctor) has not applied for another loan under the same program.

What portion of the loan will be forgiven?

The amount that will be forgiven is equal to the sum of the following incurred during the 8-week period that begins on the origination date of the loan:

  • Payroll costs (as broadly defined above)
  • Interest (not principal) on any business debts that were incurred prior to February 15, 2020
  • Rent
  • Utilities, including electricity, gas, water, transportation, telephone and internet access.
  • *Note: 75% of the forgiven amount must have been used for payroll costs.

Another way of saying this is that you will owe money when your loan is due if you use the loan amount for anything other than the costs mentioned above.

When will the 8-week period of forgiveness begin?

The 8-week forgiveness period will begin on the loan origination date, defined as the date the money lands in your account.

Can expenses for July and August be forgiven if the loan originates in June?

Yes, forgiveness will apply to the 8-week period starting on the origination date of the loan. The deadline for loan origination is June 30th, but the covered period for loan forgiveness may extend past that date.

I’ve heard that the amount to be forgiven will be reduced if I do not rehire and/or restore the salaries of my employees to the levels prior to this crisis. Is this true?

Yes, this is correct. You are not required to retain employees; however, the purpose of the “Paycheck Protection Program” is to do just that: protect paychecks. To receive the loan forgiveness, you must commit to maintain an average monthly number of full-time equivalent employees equal to or above the average during the previous 1-year period.

You will owe money on this loan if you do not maintain your payroll as follows:

  • Number of staff—your loan forgiveness will be reduced if you decrease your full-time employee headcount.
  • Level of payroll—your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • Re-Hiring—you have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

What do I need to do to receive loan forgiveness?

You will submit a request to the lender that is servicing the loan. 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.

When will the determination be made for the amount of forgiveness?

The lender must decide within 60 days of your forgiveness application submission.

When do I need to start paying interest on the loan?

All payments are deferred for 6 months; however, interest will continue to accrue over this period.

When is the loan due?

In 2 years. Exact payback terms will be worked out with the SBA lender.

If I have laid off employees, when do I need to re-hire them in order to qualify for loan forgiveness under the PPP program?

Before the date of origination on the loan – at the latest that would be June 30, 2020.

Will the loan forgiveness under this program be taxable?

No, it is not taxable.

Do I need to personally guarantee this loan?

No. There is no personal guarantee requirement. ***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.*** (This is a direct quote from the Dept. of the Treasury).

Can I use the PPP loan to prepay rent?

You cannot be forgiven of any amount of rent that you prepay. Forgiveness only applies to the amount that you are obligated to pay in the 8-week period. Given that it’s not forgivable, we do not recommend borrowing money to pre-pay rent.

What if my business did not exist before June 30, 2019?

In this case, the SBA will look at your costs in January and February 2020.

When I apply, what will I be asked to verify?

Per the exact wording on the loan application, you will be asked to certify in good faith that (on the EIDL loan the verification was “under the penalty of perjury”):

  • The Applicant was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-MISC.
  • Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.
  • The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.
  • The Applicant will provide to the Lender documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan.
  • I understand that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities, and not more than 25% of the forgiven amount may be for non-payroll costs.
  • During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under the Paycheck Protection Program
  • I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
  • I acknowledge that the lender will confirm the eligible loan amount using required documents submitted. I understand, acknowledge and agree that the Lender can share any tax information that I have provided with SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

Can I borrow the money now, then use it to reimburse payroll expenses incurred in March?

No. The loan forgiveness period for payroll expenses spans an 8-week period beginning on the loan origination date.


The “Strategy” for the 7(a) PPP loan

Please note: rarely do we publish strategy in an open, public forum. The reason is simple: your strategy depend on where you are in the game. So this information will vary from case to case. Having said that, the majority of our clients are in the same boat here: practice closed with everyone on unemployment. This strategy is geared towards you.

Who is an ideal candidate for this loan program? Meaning, for whom is this loan intended?

The purpose of this loan is to, as the name suggests, “Protect Paychecks,” meaning to keep people who are still working, working and getting a paycheck.

This loan is clearly intended for businesses that are still open but suffering a lack of revenue due to the COVID-19 crisis, and therefore are struggling to retain workers. Rather than experience even more wide-spread layoffs, the government is trying to curb sending people to unemployment by offering to pay for payroll wages for 8 weeks, starting on the date of the loan origination (the date you sign for the loan and get the money).

Consequently, this loan is not designed to benefit with “free money” offices that are closed (whether closed voluntarily or by government mandate) and who have sent their employees to collect unemployment. More details on this below.

Finally, as part of the loan the borrower is required to certify that the loan is “necessary to support the ongoing operations of the applicant.”

When should I apply for this loan?

SBA approved lenders will begin accepting applications on April 3, 2020. The Dept. of the Treasury wrote this, “We encourage you to apply as quickly as you can because there is a funding cap.”

However, the timing for our clients is not that easy. The loan forgiveness period—the part that is getting everyone so excited—runs for 8 weeks starting the date of the loan origination. Additionally, in order to be qualified for forgiveness, 75% of the loan proceeds must be used for payroll expenses. And, if you have reduced payroll costs or headcount, the forgiveness is drastically reduced (see more below).

Furthermore, if you apply for the EIDL loan and receive the $10,000 grant, your “forgiveness amount” will be reduced by the same amount.

Therefore, dentists have a difficult decision to make: apply for the loan early and secure the money but risk getting little or no loan forgiveness, or wait to get a higher amount of loan forgiveness.

What is the ideal strategy for this loan?

The ideal strategy is this, assuming your office is closed: You wait to apply for the loan until right before you open your doors; you open your doors on “Monday,” and the loan “originates” (funds land in your account) on Tuesday, the next day, thus starting the 8-week clock when you have “free payroll” (assuming everyone is rehired).

What is the conflict with following the “ideal strategy?”

There were $349 billion allocated to this program. They will loan out the money until it is gone (assuming they don’t allocate more). As previously mentioned, in the Treasury’s own words: “We encourage you to apply as quickly as you can because there is a funding cap.”

Will the government allocate more funds to this program in addition to the $349 billion?

We don’t know. However, in a press release (watch video here), President Trump mentions that this bill authorizes up to $6.2 trillion of spending. Our interpretation of that is that currently, all these $100s of billions have been allocated to these programs (unemployment, loans, payments to citizens); but if the money runs out and the economy is still shut down, they will simply allocate more funds without needing another bill.

This thinking further emphasizes our recommendation: wait to apply for this loan until you’re ready to go back to work.

Can I apply for the loan now, but defer receiving the funds?

On 4/8/20, the Treasury Department clarified that you cannot defer funding for more than 10 days. Per the Q&A released by the Treasury, “The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.”

Can’t I take this loan and pay my employees as normal for the next 8 weeks?

Yes, you can. But should you? If your office is still open and everyone is still employed, but you’re facing economic uncertainty, this is the exact intention of the loan program and perhaps you should borrow the money now.

However, if your office is closed and your employees are currently collecting unemployment benefits, why would you go through the hassle of bringing them back, cutting their unemployment benefits, and then hoping the loan gets forgiven later? Or risking that the 8-week forgiveness period isn’t long enough? In this case (office is closed, employees collecting unemployment), we do not recommend putting them back on payroll until your office reopens.



Note: The guidelines provided below are based on text from the official 880-page bill (here) and information released by the US Treasury (here). We expect over the coming months that the SBA will issue further guidance regarding loan forgiveness. We will share new information with you as soon as we know it.

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