SEPTEMBER 15, 2020

UPDATED: PPP Loan Clarification

The Small Business Association (SBA) Paycheck Protection Program (PPP) has been a source of confusion for many hospitals. This document will serve as a guide to define what the PPP is, discuss the new FTE safe harbor, instructions on applying early for forgiveness, and includes information on current qualified expenditures. Eide Bailly houses new updates for PPP changes on their website, here.

The Paycheck Protection Program

The PPP is a forgivable loan that does not have a detailed list of eligible expenditures yet. Experts are interpreting this as the Small Business Association making the exemptions broad enough that all entities qualify for loan forgiveness. This has not been confirmed. For hospitals that have not already applied for a loan, there is still money available for 24-week cover periods until August 8, 2020. If details regarding the qualifying expenditures of PPP loans are eventually published and a hospital has spent money outside of the eligible exemptions, only the money used for an unqualified expenditure must be repaid. So far, the IRS has said that the PPP will not be tax-deductible. However, there are reports that the SBA might overrule the IRS and allow for the PPP loans to become tax-deductible.

New FTE Safe Harbor

During the period beginning 2/15/2020 thru 12/31/2020, the amount of loan forgiveness under this section shall be determined without regard to a proportional reduction in the number of full-time equivalent employees if an eligible recipient, in good faith, can document 1. An inability to rehire individuals who were employees of the eligible recipient on 2/15/2020 and an inability to hire similarly qualified employees for unfilled positions on or before 12/31/2020 or 2. Is able to document an inability to return to the same level of business activity as such business was operating at before 2/15/2020 due to compliance with COVID-19 requirements established or guidance issued by the Secretary of HHS, the Director of the CDC, or OSHA. This will help protect hospitals and other entities that have needed to make FTE reductions.

Applying Early for Forgiveness

For the 8-week PPP plan, salary and FTE reductions are measured at the end of the covered period. The FTE and salary information of the date the covered period ends is what will be used on the forgiveness application. For the 24-week PPP plan, if the forgiveness application is completed prior to the end of the covered period, salary and FTE are tested at the time of the application. There are very few banks across the United States with early forgiveness applications open right now. Banks will reach out to hospitals and other small businesses once their online portals are open for the application processes. This is expected to begin in early August 2020.

Update September 14, 2020: Eide Bailly is still not recommending that hospitals apply for forgiveness due to the continuing changes.

Current Qualified Expenditures

Current example forgiveness applications appear to allow borrowers to tally total expenditures exceeding actual loan amounts. The FTE and salary reduction are applied against the expenditure total. This will benefit borrowers using the 24-week covered period since this covered period equals almost 6 months of payroll plus an allowance of an additional 40% on eligible non-payroll costs. This appears to be intentional by the SBA to make the FTE and salary reductions less potent.