Medicare Compliance & Reimbursement

Expect the level of scrutiny to match the amount borrowed.

If you applied for a Paycheck Protection Program (PPP) loan and have been patiently waiting for what to do after the dust settles, the wait is over. The Small Business Administration (SBA) has finally addressed PPP loan forgiveness with new guidance and an application for forgiveness.

Reminder: Section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) outlines the SBA’s PPP, which aims to assist small businesses impacted by the COVID-19 pandemic. Under the program, small businesses like physician practices can apply through an SBA-approved lender for assistance with things like payroll, rent, mortgages, and utilities. The PPP loans are capped at $10 million.

“Sole-proprietors, independent contractors and other self-employed individuals are eligible,” relates an American Medical Association (AMA) release on the PPP. “A loan can be forgiven based on maintaining employee and salary levels. For any portion of the loan that is not forgiven, the terms include a maximum term of 10 years and a maximum interest rate of four percent.”

AMA adds, “This program is retroactive to February 15, 2020 and available through June 30, 2020. All current SBA 7(a) lenders are eligible lenders for PPP, and the Department of Treasury will also oversee authorizing new lenders.”

Check out the PPP fact sheet at https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf.

See SBA Update on Loan Forgiveness

The SBA “released the Paycheck Protection Program (PPP) Loan Forgiveness Application and detailed instructions for the application” on May 15, the agency says in a release. “The form and instructions inform borrowers how to apply for forgiveness of their PPP loans, consistent with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).”

The new document “will help small businesses seek forgiveness at the conclusion of the eight week covered period, which begins with the disbursement of their loans,” SBA continues.

The 11-page application and detailed instructions give borrowers “a better understanding of the documentation needed to apply for PPP loan forgiveness and what the procedure will require,” observes law firm Holland & Knight in online analysis.

The new document and instructions clarify these important six points:

1. Consider the New Payroll Schedule

The application specifies an “Alternative Payroll Covered Period,” if borrowers want to use it. Under PPP, borrowers may obtain forgiveness for eligible payroll, rent, mortgage interest, and utilities costs they make within an eight-week period. But providers haven’t been sure how exactly to count payroll.

“For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date,” SBA explains in the application. “For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.”

The Health Group is “pleased that the application has provided an Alternative Payroll Covered Period,” the Morgantown, West Virginia-based consulting firm says.

“This is welcome news to many, as it simplifies the tracking of loan spending and assures borrowers, they will get the full benefit of eight weeks’ worth of payroll,” notes Emir Hodzic with VonLehman & Co. in online analysis.

The clarification “may enable borrowers to have more of their loan amount be forgivable due to timing,” says law firm Cooley in online analysis.

2. Understand Costs Incurred or Paid Are OK

When calculating costs for forgiveness, original guidance indicated the costs had to be incurred and paid during the covered period, Holland & Knight notes. The forgiveness application instructions now make clear that they can be incurred or paid.

“This clarifies earlier questions about whether borrowers might consider accelerating payroll dates to fall within the ... covered period,” Cooley says. “This would be ill-advised given the new clarity that ‘incurred’ but not yet paid payroll costs count.”

Pointer: According to the application, “payroll costs are considered paid on the day that paychecks are distributed, or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned.”

3. Feds Outline Payroll Ratio

The application and instructions confirm that payroll costs must account for at least 75 percent of the loan forgiveness amount.

Rumors had circulated “that perhaps new rules would relax the 75/25 split,” Cooley observes.

“Many businesses have expressed concerns over their ability to spend their loan monies on at least 75 percent payroll cost while still incurring occupancy and other expenses,” Hodzic notes. But “the SBA has doubled down on the requirement. Therefore, any other eligible costs will not be considered for forgiveness unless the 75 percent threshold is met, despite no such language being a part of the actual CARES Act.”