PPP loan forgiveness: What physicians need to know

July 3, 2020

Applying for PPP loan forgiveness is a critical final step for physicians who took the financial initiative to safeguard their staff and their practice during this uncertain time.

For most physicians, the last few months have been some of the most trying of their careers. For practice owners specifically, prioritizing staff and patient safety while also balancing the financial health of their business has been a day-to-day endeavor.

The SBA’s Paycheck Protection Program provided much-needed support and stability for physicians who sought to maintain their employees during this time. If you received a PPP loan, you may now be juggling reopening your practice with preparing to apply for loan forgiveness.

First, borrowers should be aware of the provisions in the recently passed PPP Flexibility Act, which helps borrowers better qualify for forgiveness. The Act reflects several key changes relevant to forgiveness:

  • Borrowers now have 24 weeks to use their funds, as opposed to the original eight weeks. However, those who took out loans prior to June 5 have the option to use the original eight-week period, if they prefer, while loans originated after June 5 will be required to use a 24-week covered period.
  • Non-payroll expenses that can be forgiven has increased from 24 percent to 40 percent.
  • Any portion of the loan that is not granted forgiveness can now be repaid over five years, increased from the original two years, though the extension must be mutually agreed upon by the borrower and lender for all loans originated before June 5.
  • Borrowers do not have to make any payments on the unforgiven portion of the loan until SBA makes a final decision on the forgiveness application. If no such application has been filed, payments begin after 10 months.
  • Employers have until Dec. 31, 2020 to eliminate a reduction in full-time employees or salary that would otherwise reduce the forgivable amount.

When it comes to the loan forgiveness application, it may seem daunting to enter another unfamiliar process, it doesn’t have to be. Here are some facts that physicians need to know now:

1. The PPP was designed to cover payroll-related costs.

As indicated by the name, the PPP was created to cover costs related to your staff’s compensation. Most loan amounts were calculated at 2019 payroll expenses, which includes expenditures such as:

  • Employee salary or wages, commissions, cash tips, or similar compensation
  • Payment for vacation, parental, family, medical, or sick leave
  • Payment required for the provisions of group healthcare benefits, including insurance premiums 
  • Payment of any retirement benefit
  • Payment of state or local tax assessed on the compensation of employees
  • Compensation to or income of a sole proprietor or independent contractor 
    up to $100,000/year

However, some non-payroll costs, such as interest paid on your mortgage, rent payments, or utility bills may be forgiven under the PPP, so long as they make up nor more than 40% of your total loan. Non-payroll expenses must be subject to mortgages, leases, or utility contracts that were in place prior to Feb. 15, 2020. PPE, a major cost for physicians reopening their practices, is not covered by the PPP, and therefore funds that are allocated to this purpose will not be forgiven.

2. 100% of your PPP loan can be forgiven.

It’s true—your PPP loan can be forgiven entirely if you follow certain criteria and you can prove the funds were spent accordingly. For instance, make sure that you’re using your funds for explicitly approved purposes only, and that you’re spending the entirety of your loan within the covered period. Any funds that are not used according to the guidelines will become part of the balance you have to repay.

3. You must provide proof of your expenditures in order to submit them for forgiveness.

First, make sure that you have the right forgiveness application. The SBA recently released a revised full version and a new short version (the Form 3508EZ).

The EZ application can be used by self-employed individuals, independent contractors, sole proprietors with no other employees, or any other borrower who did not reduce the number of full-time employees during the covered period or did not reduce pay for any employees by more than 25 percent (full-time employee and salary levels are compared to a pre-pandemic reference period to determine any reduction). Borrowers who don’t meet these criteria must complete the full application.

Keeping detailed documentation of your PPP-related spending is critical for ensuring maximum loan forgiveness. Some examples of acceptable documentation include forms such as paid checks, payroll documentation, receipts, billing statements, and more. The more diligent you are in maintaining and organizing your proof documents, the easier it will be for your lender to process your loan forgiveness application in a timely manner.

4. You apply for PPP loan forgiveness through your lender

Your financial institution has 60 days to review your application and return with a decision about your loan forgiveness. From there, the lender submits it to the SBA, which then has 90 days to finalize the decision and remit funds to the lender in the amount forgiven. The lender will notify the borrower of the decision.

The SBA has released a standard forgiveness application, as well as guidelines for applying and details about the documentation required to do so. Borrowers may submit forgiveness applications any time on or before the maturity date of the loan, and will have to start making payments on the full loan amount if a forgiveness application has not been filed within 10 months of receipt of PPP loan funds. You want to be sure that your application is complete and correct, so that you can be confident that you’ve done everything you can to maximize your forgiveness.

Applying for PPP loan forgiveness is a critical final step for physicians who took the financial initiative to safeguard their staff and their practice during this uncertain time. Making sure to use funds correctly, document your expenditures, and apply with confidence will set physicians up to receive the maximum forgiveness on their loan, and get back to doing what they do best–caring for their patients.

About the Author

Mark Schmidt is CEO of Fund-Ex Solutions Group, a non-bank SBA lender and wholly-owned subsidiary of Bankers Healthcare Group. For more information, visit fundexsolutions.com.