What Doctors Need to Know About P3 Loan Cancellation
The transcript has been edited for length and clarity, and due to changes in the law after the interview, some notes regarding those changes have been made.
Medical Economics®: For practices that have received a PPP loan, how does the forgiveness request process work?
Mark Schmidt: It is basically an application process just like applying for a loan. Each borrower will complete the application and submit it to their lender after the eight week period. [Note: Congress extended this to 24 weeks after the interview.] The lender then reviews the application and all the documents that have been submitted. The lender has 60 days to make a decision and forward it to the Small Business Administration (SBA). The SBA then has 90 days to review this and then notifies the lender, the lender comes back to the borrower and lets them know whether or not they have been approved for forgiveness. Hope it won’t take that long. It shouldn’t take the full 60 days for most lenders, and I like to think the SBA will scale faster than the 90 days allowed by law, especially for small loans.
I: Is there a way to maximize the amount of forgiveness you receive in practice?
Schmidt: Take out the regulations that have been published, read them and understand them as much as possible. Keep very good records, both for the eight [or 24] weekly pay period and the reference period. And then the third thing is to get help if you need it. A lot of our borrowers already have someone on their own staff or an accountant who helps them with their taxes or whatever, and that’s probably a good place to start. Again, this is not a straightforward process. It looks a lot like an IRS form and rather complicated. It includes an application form, Annex A and a worksheet. There is a lot of math involved. There are a lot of technical details involved and again it’s not a straightforward process.
ME: When you look at the calculations for the total number of employees, how do you calculate part-time employees? How do they take all of this into account?
Schmidt: The amount of their discount is based on how much you spend over the eight [now 24] week for certain eligible expenses, but this eligible rebate amount is then reduced if you ever reduce your full-time equivalents (FTEs). Congress added this little provision that says if you happen to reduce your FTEs during those eight [or 24] period of one week after obtaining the loan, compared to the previous reference period, then you do not get a full discount; in fact, it is a percentage reduction. If you cut your FTEs in half, you only get half the forgiveness. The question then arises: “How can I count my part-time employees?” and they basically made it pretty straightforward. It is based on a 40 hour week. Thus, anyone who works 40 hours or more counts as an FT. Anyone who works less than 40 hours, there are two ways you can do it. You can either take each employee individually and calculate their FTE based on their hours, so for 20 hours you have half an FTE. If you work 30 hours, you are .75 etc. Now for the companies that have a lot of part time employees, they have given you another streamlined option. Instead of doing the math on each one, you can just count them all as half. You have to be consistent. If you do the math on some of them, you have to do the math on all of them.
I: What about someone on FMLA leave? Do they count in the total? What if they started FMLA after applying for the loan? How does it all work?
Schmidt: Interestingly, SBA did not specifically address FMLA in calculating FT. But they’ve done a few things that make me think it’s very safe to include these people. First, FMLA payments are included in the definition of payroll. Second, they added a provision that if an employee is voluntarily reduced in hours or has resigned or declined a rehire offer, you do not have to reduce your FTE for that reason. I think it’s safe to assume that someone who is on family medical leave is voluntarily reducing their hours. And keep in mind that you often continue to employ and pay them. They are therefore on paid leave, that clearly matters.
I: In the remission forms, there are a lot of references to the calculation of the pay period. What does it refer to and how do you do it?
Schmidt: It’s a key factor. Your P3 loan was based largely on 2019 data. You took the 2019 payroll data and figured out what two and a half months of payroll was for 2019. And then you carried over the loan. So from the day you get the loan, and that is the day you get the money, the repayment period starts with one exception. But what is essential is the money that is potentially eligible to be forgiven, it is the money that is spent during these eight [or 24] period of the week. The eight [or 24] The period of the week begins on the day you receive the money. The reason this period is critical is that it is the period during which you need to spend the PPP funds on qualifying expenses: payroll, rent, mortgage interest, utilities. You have to keep track of those four expenses during this time, and we have to keep very good records.
The SBA threw a few curved balls at us here. For starters, a week starts the day you get the money, but they gave us an option. They said if you prefer, no matter when you got the money, if you want all eight [or 24] that the calculation period of the week begins on the first day of the next pay period, you can choose that. And they also added another little kicker that I think is important. It’s not just the money that you spend during the period, you add to that the expenses that were incurred during the eight [or 24] period of the week. In other words, if your period ends on Monday and your pay is Friday, you can count those four days or the number of days you haven’t paid your employees yet. So they made money, but you haven’t paid it yet. That’s what they mean by engaged, and you can count it in the forgiveness calculation as long as you pay it on the next payday.
In the wages and salaries category, what you pay your employees counts. If you have reduced either of these two factors, compared to a baseline period last year or this year, then your forgiveness is reduced. It gets a little complicated, but essentially if you have reduced your FTEs, you need to reduce your discount amount by the FTE Reduction Percentage. If you reduce someone’s wages during that loan period, compared to a reference period, that is a direct reduction in the amount of the forgiveness.
I: Is every employee salary eligible for loan forgiveness, including highly paid physicians?
Schmidt: The short answer is yes, but with limits. The law caps wages at $ 100,000 for calculating the loan amount and for the forgiveness amount.
I: If the program is renewed, what should practice leaders keep in mind to maximize their forgiveness rate?
Schmidt: First of all, I think the chances of the program being renewed, at least with some extra money, are actually going down. And the reason is that the second round of money didn’t go away as fast as people thought. If you remember, the first $ 350 billion was loaned in a matter of days; I think it was a little over a week. So when the second round of $ 310 billion was put in place, we wondered how long it was going to last and it has been going on for several weeks now. They are therefore less likely to add more money to the program.
I: Do you have any theories as to why there is less interest in a second round? Is the business environment too unfamiliar to take on additional loans?
Schmidt: I think it’s a lot, and there are also questions around the program itself. If you remember it early on, especially after that first round, the maximum loan was $ 10 million. And there were a number of borrowers who took out large loans, where questions arose as to whether they really needed it. Some of them had access to capital markets, others had other sources of liquidity. And while it could be clearly stated that they were eligible under the law, there has been a step back, and a lot of questions have arisen about the real intention of some borrowers to have this and they have started to add more paperwork, if you will, around the forgiveness process.
Now we see a 10 page forgiveness request form which is very complicated. Add to that the requirement to spend most of the money on payroll, and I think that’s probably the biggest part, a lot of practices and businesses are just shut down. The employees are on leave. The borrowers looked at this and said, listen, I have no way of spending the money right now. Why would I want to borrow money and then try to spend it in eight weeks? It will not be forgiven. I don’t need more debt. But it’s still a little surprising if you stop and think about the fact that according to the SBA, a large percentage of small businesses did not apply. This may sound like good news for the economy, but hopefully it doesn’t mean that people who need and qualify are afraid to apply, because it’s a good program if you follow the rules. .