PPP Loan Update – Applying for Forgiveness and Round 2 Funds

Jan 22, 2021

PPP Loan Update – Applying for Forgiveness and Round 2 Funds

PPP Loan Update:

The SBA issued has new “Interim Final Rules” on January 6 and January 19, which help clarify the new round of PPP Loans authorized by the year-end Consolidated Appropriations Act, 2021 (the “Act”).  Here are the relevant details.

Eligibility for Round Two:  First, you will need to show that your “gross receipts” in a 2020 calendar quarter fell by at least 25% compared to the same quarter in 2019.  In addition, you will have to certify that the loan is “necessary to support the ongoing operations” of your practice.  This is a requirement under the first round of PPPs.  It’s also an example of how the SBA likes to add new hurdles to the process that the original laws didn’t require.  Most dentists had horrific second quarters but then rebounded strongly.  For them, the second PPP loan is arguably not “necessary.”  The good news is that the SBA won’t question the necessity of PPP loans up to $150,000.

It’s also unlikely that the SBA will questions “reasonably” sized loans over $150,000.  This whole “necessity” concept dates back to last spring when large companies that arguably didn’t need PPP loans (but still qualified and took multi-million dollar loans) faced a major public backlash, particularly when smaller businesses were being locked out.  To save face, the SBA imposed a necessity requirement on loans over $2,000,000, and many of the largest loans were quickly repaid.  While there are no guarantees, we think it’s unlikely that a loan of, say, $200,000-$300,000, taken by a low-profile, non-public company like a doctor’s practice, would face much scrutiny.  And even if it does, the concept of “necessary to support the ongoing operations” is highly subjective.   Even though your practice rebounded after the shutdown, you can likely point to a number of patients who are fearful of returning until there’s been mass vaccinations and to your higher overhead expenses in making your office safe for patients and staff.

If You’re Having to Compare Your 2020 Quarterly Performance to 2019, What Do You Do if You Weren’t in business in 2019?  The new rules say that if the borrower wasn’t in business at all in 2019, but was in business by Feb. 15, 2020, then the borrower can compare its gross receipts during the second or third quarter of 2020 to the first quarter of 2020.  And, if you weren’t in business in the first three quarters of 2019 but were in business during the fourth quarter of 2019, then you can compare the first, second, or third quarter of 2020 to the fourth quarter of 2019.

Meaning of “Gross Receipts”:  Gross receipts include all revenues from the “normal operation of the business” before subtraction of expenses but does not include amounts borrowed, including amounts received and forgiven for PPP and EIDL loans.  In the last Newsletter, we raised the possibility that practices whose production was down but whose collections remained fairly steady (e.g., orthodontists) might be eligible if future SBA guidance makes the definition of “gross receipts” more flexible.  Unfortunately, at this point, that doesn’t appear to be the case.

To be Eligible for Round Two, You Must Have Taken a Round One Loan – And Spent The Money on Eligible Expenses That’s going to be most of us.  But, if for some reason, you didn’t take a round one loan (and the deadline for that was Aug. 8, 2020), you can now do so.  Under the Act, Round One is being revived for those that didn’t participate last year.  You won’t have to show a 25% reduction in quarterly receipts if this is your first PPP loan.   The old computation rules will continue to apply for claiming a round one or round two loan.  We multiply our average monthly “payroll” (salaries, amounts spent on employee health insurance, and retirement plan contributions, but with owners capped at $100,000).  This time around, we can use either our 2019 “payroll” figures or the payroll figures for the “the 1-year period before the date on which the loan is made.”  So, we’re basically looking at the 2019 or 2020 calendar year.  Obviously, use the one that gives you the higher amount.  The window for obtaining a Round One Loan (for those who didn’t take one last year) and a Round Two Loan (for those who did) closes on March 31, 2021.

Don’t Worry – The Deadline for Applying for Round One PPP Forgiveness Is Still a Ways Off:  The deadline is ten months following the end of your “covered period” – not ten months from the loan origination date.  Some were worried that they would miss the deadline now that the forgiveness rules have changed and banks have delayed processing applications while they wait for the SBA’s new forms.  The good news is that there will be plenty of time.  Even if you took your loan early in the process, say April 15, 2020, and you use the short eight-week covered period for spending the money, you will still have until mid-April of 2021 to submit your forgiveness application.  If you now use up to a 24-week covered period, that would extend your forgiveness application date by an additional 16 weeks.

EIDL Advances No Longer Reduce PPP Loan Forgiveness:  If you applied for PPP forgiveness prior to the passage of the Appropriations Act, your forgiveness was reduced by the amount of your EIDL advance (up to $10,000), and that amount had to be repaid to your PPP lender.  The Act eliminated this offset rule for all PPP loans, even previously forgiven ones, and requires PPP lenders to return the EIDL advance money to the PPP borrowers who had the money deducted from their loan forgiveness.  This will take some time to implement.  Check your account periodically to see if you receive your refund.  If you don’t, call your branch manager to find out when your bank plans on making them.

New One-Page Forgiveness Form for Loans Up to $150,000:  Called the “PPP Loan Forgiveness Application Form 3508S” this form requests information about the loan amount, disbursement date, employee totals, covered payroll period, amount spent on payroll, and amount of forgiveness requested.  No supporting documentation is required to be submitted, but borrowers must keep payroll and other records in the unlikely event of an SBA audit.

For loans over $150,000, you request forgiveness using Form 3508 or the more streamlined Form 3508EZ (if you didn’t reduce compensation by more than 25% for any employee earning $100,000 or less), but you will have to submit payroll and non-payroll information when applying with these forms.

Some Parting Thoughts on Applying for Loan Forgiveness:  When you determine how much you spent on your payroll costs, remember that as an owner, you can’t include more than $20,833 for yourself.  Whether you can add your health insurance and retirement plan contributions depends on your business entity.  Review our blog post from August 6 (on our website under “Covid-19 Resources”) for a recap.  The maximum amount of salary forgiveness for any other employee is $46,154 (plus health and retirement benefits).  Also, as discussed in the Jan. 1 Newsletter, the Act permits several new categories of overhead expenses to qualify for loan forgiveness.  And to recap again, the covered period has been redefined to be any period the borrower chooses between 8 and 24 weeks commencing on the date of loan disbursement.  The odds of qualifying for full loan forgiveness are now quite high.

Collier & Associates, Inc. will update our blog as the CARES Act progresses. We take pride in continuing to keep our subscribers and website visitors updated on current events during this extraordinary time.

We will work diligently to answer general inquiries via our website if time permits and in a little more detail within our Newsletters. However, if your questions are detailed in nature, please request to set up a conference call for a formal consultation. Thank you.


Collier & Associates, Inc. provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act on this information without seeking advice from professional advisors.

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