New COVID-19 Relief Package Offers Second Loan to Borrowers
On Dec. 21, Congress passed a new COVID-19 relief package that reopened and expanded the Paycheck Protection Program (PPP) originally launched to help struggling small businesses.
Included in the new package is an opportunity for businesses that were severely impacted by the pandemic to get a second loan from the Small Business Administration (SBA). Practices hoping to get a second draw from the PPP are required to:
- Have 300 or fewer employees
- Have used or will use entire initial PPP loan
- Demonstrate at least a 25% reduction in gross receipts in the first, second or third quarter of 2020 relative to same quarter in 2019
- Businesses that apply after Jan. 1, 2021 can utilize gross receipts from the fourth quarter of 2020.
Borrowers of second draw loans have the option of selecting a covered period that ends between eight and 24 weeks after the loan origination date.
Terms
Borrowers may receive a loan amount of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or the calendar loan. Second draw loans have a maximum amount of $2 million dollars.
Forgiveness
Borrowers of second PPP loans will be eligible for loan forgiveness if they dedicate at least 60% of funds to payroll costs. Other costs eligible for forgiveness include covered mortgage, rent, utility payments, operations expenditures, supplier costs, worker protection expenditures and property damage costs due to public disturbances.
Application Process
Loans will be available through the same SBA-approved lenders that provided the first round of loans. SBA is expected to issue regulations on the second draw loans within 10 days of the bill being signed into law. The Academy will keep members apprised of when the application window opens.
More information on the PPP is on the SBA website.
Background on the Initial Paycheck Protection Program
The Coronavirus Aid, Relief and Economic Security (CARES) Act provided relief options for ophthalmology practices during the COVID-19 emergency.
One source of COVID-19 relief, the Small Business Administration's Paycheck Protection Program, offers zero-fee loans of up to $10 million. We've provided new information on legislation passed in early June that adds more flexibility in how long recipients have to spend the money and what non-payroll expenses are acceptable. According to legislation signed into law on June 5, the program now:
- Allows forgiveness for expenses beyond the eight-week period to 24 weeks and extending the rehiring deadline
- Increases the current limitation on non-payroll expenses (rent, utility payments and mortgage interest) for loan forgiveness from 25% to 40%
- Extends the program from June 30 to Dec. 31
- Extends loan terms from two to five years
- Ensures full access to payroll tax deferment for businesses that take the loans
The Academy anticipates more guidance from U.S. Treasury on how to implement the loan terms and other changes.
Eligibility
The program is open to small businesses, including physician practices, 501(c)(3) nonprofits, 501(c)(19) veteran’s organizations, tribal business, sole-proprietors, independent contractors and other self-employed individuals.
Find information on eligibility for these loans if you're also considering an Economic Injury Disaster Loan or you receive an Emergency Economic Injury Grant.
Application Process
The loans will be made available through SBA-certified lenders or lenders approved by the U.S. Department of Treasury. If you have an existing relationship with an SBA-certified lender, contact the lender immediately to apply. If you do not have an existing relationship, use the SBA lender match tool to identify a lender in your area.
At least one national lender has asked practices to prepare for the application by gathering this financial information:
- 2019 payroll, including the last 12 months
- 1099s for 2019 employees and independent contractors. (Not 1099s for services)
- All health insurance premiums paid by the business owner under a group health plan.
- Retirement plan funding paid for by the company.
Application Timeline
Starting April 3, small businesses and sole proprietors can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Fill out the SBA application. Independent contractors and self-employed individuals can begin applying on April 10. The last date to apply is June 30.
See the borrower information fact sheet for more information on applying.
Disbursements
Some members have applied and gotten approval for a PPP loan but want to delay disbursement. However, the loan disbursement of the loan must come no later than 10 calendar days from the date of loan approval.
Updated April 17, 2020, 5 p.m. PT
Defining the Covered Period
Loans now cover a 24-week “covered period” that begins the day the loan is disbursed.
Updated June 5, 2020
Purpose of Loans
Loans through this program can be used for payroll support, such as employee salaries, paid sick or medical leave, insurance premiums and mortgage, rent and utility payments.
Terms
The maximum loan amount is $10 million. For specific term methodology, please refer to the SBA references in the links below.
Applying and Eligibility for Loan Forgiveness
Loans received through this program are eligible to be forgiven if employees are retained. Forgiveness can cover payroll costs, mortgage interest, rent and utility pay for up to a 24-week period. To receive forgiveness, practices will need to meet employee retention and compensation requirements. Practices seeking loan forgiveness need to spend at least 60% of it on payroll.
In order to apply for loan forgiveness for the loan, you must submit a request to the lender that is servicing the loan. In your request, 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 forgiven amount to keep employees and make eligible mortgage interest, rent and utility payments. The lender must make a decision on loan forgiveness within 60 days.
Updated June 5, 2020
Application for Loan Forgiveness
The SBA’s PPP loan forgiveness application is now available online. The application has information on:
- 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 covered period after receiving their PPP loan
- 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 June 30
- 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
Updated June 17, 2020
Payroll Expenses Defined for PPP Loans
Here is the definition of payroll costs, according to the Department of the Treasury:
- 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
- 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
Ongoing Loans Not Forgiven
Any loan amounts not forgiven at the end of one year are carried forward and have a maturity of up to five years at 1% interest. The first payment is deferred six months. Interest will accrue on the loan during the deferment period.
Updated June 5, 2020
Multi-Loan Eligibility
Whether you have already received an Economic Injury Disaster Loan (EIDL) unrelated to COVID-19 or you receive a COVID-19-related EIDL or Emergency Economic Injury Grant between Jan. 31 and June 30, 2020, you may also apply for a Paycheck Protection Program loan.
There are several COVID-19 relief programs that you can participate in, including the Small Business Administration’s Paycheck Protection Program and Economic Injury Disaster Loans/Grants, Advance Payments from the Centers for Medicare & Medicaid Services and relief grants from the Department of Health and Human Services.
You can participate in all of the COVID-19 programs simultaneously and receive a PPP loan, an HHS grant, an advanced payment from CMS and an EIDL loan or grant. The following restrictions apply if you receive money from more than one program:
- You may not use funds from two programs to pay for the same expense.
- Accepting an EIDL advance grant will reduce the forgivable portion of a PPP loan on a dollar for dollar basis.
There are also different time frames in which funds from different sources must be used, and different reporting requirements. Therefore, it is critical to keep meticulous records of the source and use of all funds.
Updated April 17, 2020, 5 p.m. PT
Qualifying Utility Expenses for PPP Loans
Covered are electricity, gas, water, transportation, telephone and internet access services that began before Feb. 15.
Updated April 17, 2020, 5 p.m. PT
Using PPP Loans for Mortgages
PPP loans are allowed for paying interest but not principal on any mortgage obligation that existed prior to Feb. 15.
Updated April 17, 2020, 5 p.m. PT
Further Resources
Paycheck Protection Program Borrower Information Fact Sheet. Small Business Administration
Interim Final Rule, Paycheck Protection Program, Small Business Administration
Apply to the Paycheck Protection Program by contacting your local lender immediately. For more information on finding a lender, contact a Small Business Administraion regional or field office.