New Loan Programs: A Brief Summary and FAQs
The newly-released SBA Paycheck Protection Program (PPP) and Economic Injury Disaster (EIDL) Loans are included as part of the new $2 Trillion economic stimulus program passed recently by the federal government. Small businesses are encouraged to apply, including independently-owned medical practices and services providers.
We've provided the information below to give you a basic understanding of what is available to you but please be sure to consult with your financial advisor, accountant or lawyer.
Paycheck Protection Program FAQs for Medical Professionals
Are these loans or grants?
These are structured as loans. However, the loans will be forgiven (meaning they do not need to be repaid) if your business retains the majority of their employees during this crisis.
How much money can I receive?
The loans will cover up to 2.5 months of payroll expenses, including benefits, most mortgage interest, rent and utility costs over the eight-week period after the loan is made.
When is the deadline to apply for a PPP loan?
There is a cap of $349 billion for the program. Because the funds are most likely to be allocated on a first-come first-serve basis, it's advisable to apply early. The SBA will begin accepting applications on April 3, 2020.
What do I need to apply for the loans?
A sample of the application is listed here. The application is very simple and straightforward, especially considering that it's a government program. The entire application is only 2 pages and can probably be filled out in less than 20 minutes. Basic information is required for equity holders with >20% ownership in the business.
What are the terms of the loan?
- 0.5% interest rate
- 6 months of deferred payments, though interest will accrue over this period
- 2 year maturity
- No prepayment penalties or fees
- No collateral required
- No personal guarantee required (there may be a personal guarantee required for loans > $200,000)
Where can I apply?
You can apply through a local bank. It's advisable to select a bank with experience processing SBA loans. To see a list of banks with the most SBA experience you can visit this site.
What counts as "payroll costs?"
- Salary, wages, commissions, or tips (capped at $100,000 annualized 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
How much of the loan will be forgiven?
You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent and utilities payments over the eight weeks after getting the loan. Due to possibly high subscription, payroll costs will likely need to account for at least 75% of the amount used. An additional application with documentation of expenditures will need to be submitted to apply for loan forgiveness.
Is it possible the SBA will deny my loan forgiveness application?
Loan forgiveness is not a guarantee when the loan in granted. If you are not able to provide the proper documentation proving how the money was spent, you could end up needing to repay the loan. You will also owe money if you do not maintain your staff and payroll. Here are those conditions:
- 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.
You can learn more at these links:
- Official SBA Fact Sheet
- Pinnacle Financial Partners Information
- Payroll Protection Program (PPP) Application Form
- SBA's Official Online Application Process
- Crowell Moring FAQs
Economic Injury Disaster Loans FAQs
The SBA is offering federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of COVID-19. These are available now. These loans come directly from the SBA, and applications will be made through the SBA. To apply now, visit this site.
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