We are excited to announce that on Wednesday, June 3rd, the Senate passed a bill allowing more flexibility with the PPP loan program. The House passed the same bill last week, and it is expected the president will soon sign the bill into law. These are the changes we were hoping to see, and this is a gamechanger that will allow many businesses to maximize the PPP loan forgiveness. The new bill includes the following:
- The PPP loan forgiveness period is extended from 8 weeks to 24 weeks. This is a significant change that will allow practices to maximize the use of the loan. Keep in mind that the PPP loan was based on 2.5 months of payroll costs, and you now have 24 weeks to spend it. This eliminates most of the challenges of the program and allows employees to be rehired when the practice is ready.
- The 75% rule has been reduced to 60%. Previously you had to spend 75% of the loan proceeds on payroll. This amount has been reduced to 60%. However, if you spend less than 60% of the loan on payroll, you will have $0 forgiveness, which is a drastic change from the previous 75% rule. Even with this drastic change, we believe practices will have no problem spending at least 60% of the loan on payroll over the 24-week period. In fact, we recommend that you spend as much on payroll as possible as this will simplify the loan forgiveness application—you will just need to attach payroll reports.
- The staff rehire date has been moved from 6/30/20 to 12/31/20. You now have until 12/31/20 to rehire employees back to the 2/15/20 level. This rule change will help a lot of businesses including dental practices. The downside to this rule is that borrowers will not be able to apply for forgiveness until after 12/31/20. The rule will also likely create some accounting and tax reporting issues that will eventually be resolved. Overall, though, the upside is still very favorable.
- The required Full Time Equivalent (FTE) goal for the rehire exemption is reduced if you are unable to rehire staff or business has declined due to HHS, CDC, or OHSA requirements regarding COVID-19. This exception is new, and we will need additional guidance to clarify it. In general, if guidelines are issued that restrict the number of people you can have in the practice, this part of the new bill will give practices flexibility in adjusting staffing levels to the new norm.
- New PPP loans will have a minimum maturity of five years. While this is great, the goal is to obtain 100% forgiveness within the 24-week period. If you do not get 100% forgiveness, you may be able to modify the terms of the loan from a two-year payback to at least five years. All new PPP loans will have a minimum maturity of five years. Please keep in mind that they have not reversed the rule regarding EIDL grant money of up to $10,000. If you received EIDL grant money, it will reduce your PPP loan forgiveness. Essentially, this means you will need to pay back the grant money you received.
There are still some unanswered questions with the new bill. For example, we assume the $15,385 per person payroll limit will increase to $46,154 with the extension of the forgiveness period from 8 to 24 weeks, but we will need confirmation from the SBA. There are questions about payments to related parties and retirement; however, these issues have less relevance since almost every practice will have no problem spending the full PPP loan on payroll and rent.
We now recommend that borrowers focus on using the PPP loan to pay payroll expenses, including staff health insurance (employer paid portion only), and rent. By just focusing on payroll and rent, this will simplify the process and it will make it much easier to complete the loan forgiveness application. We recommend bringing in other expenses such as retirement and utilities at the end of the 24-week period only if needed to spend all the money.
If cash is low and you need the PPP loan money to cover payroll and rent, please move the PPP funds to your account. We are assuming most practices will be able to use all of their PPP money with the extended forgiveness period. You do not need to pay the expense first and reimburse from the PPP loan. The Excel schedule that tracks covered expenses along with back-up documents are the most important items for the bank.
For clients who have asked us to help with their PPP loan tracking, we recommend that you move all of your PPP loan money to your regular checking account. In addition:
- Each month we will monitor the use of the PPP loan money, and we will update the Excel tracking template. You will receive a monthly email regarding the loan balance, and we will let you know which back-up documents to send that will later be used for the loan forgiveness application to the bank.
- We are assuming you will use all of the PPP funds now that the forgiveness period has been extended to 24 weeks. If it appears you might not use all the money, we will help create a plan toward the end of your 24-week period.
- We will also make sure you hit the 60% payroll cost test that is now mandatory to have the loan forgiven.
Please let us know if you have questions about the new PPP loan guidelines. We hope you continue to stay safe and healthy.