What to expect in loan forgiveness through modified Paycheck Protection Program

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On June 3, the U.S. Congress passed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA), which modifies the Paycheck Protection Program (PPP) established through the Coronavirus Aid, Relief, and Security (CARES) Act.

Rebecca Farrington from Healthcare Administrative Partners.Rebecca Farrington from Healthcare Administrative Partners.

The PPP is a potentially forgivable loan administered by the U.S. Small Business Administration (SBA). This latest legislation changes some of the terms and requirements that will lead to loan forgiveness, as we outlined in our recent article.

The key provisions of the PPPFA are as follows:

  • A longer period for borrowers to use the funds eligible for forgiveness
  • More of the loan may be used for eligible nonpayroll costs
  • A longer period in which an employer may rehire or eliminate a reduction in payroll
  • Employers will be allowed to defer payroll tax payments along with forgiveness of a PPP loan
  • A longer period of deferral before repayments must begin
  • A longer period to repay the nonforgiven portion of the loan

This table compares the original provisions with the revised rules:

Original PPA rules vs. revised PPPFA rules
  Original PPA rules Revised PPPFA rules
The "Covered Period" for use of loan funds 8 weeks (about 2 months) from receipt of the loan proceeds 24 weeks (about 6 months) from receipt of the loan proceeds, but no later than December 31, 2020
Use of loan funds to be eligible for forgiveness At least 75% of the loan proceeds had to be used for payroll costs, with up to 25% for nonpayroll costs. At least 60% of the loan proceeds must be used for payroll costs, and up to 40% of the loan proceeds may be used for nonpayroll costs.
Rehiring employees or restoring pay cuts Employment and pay levels had to be restored by June 30, 2020. Borrowers now have until December 31, 2020, to restore employment and pay levels.
Payroll tax deferrals PPP loan recipients were ineligible for payroll tax deferrals. Payment of the Social Security taxes on payroll paid between March 26 and December 31, 2020, may be deferred. 50% is due by the end of 2021, with the remainder by the end of 2022.
Deferral of PPP loan payments Repayment of the unforgiven balance of a PPP loan would begin 6 months after the amount of loan forgiveness was determined. Repayment will be deferred until the amount of loan forgiveness is determined. Borrowers who do not apply for forgiveness will have up to 10 months from the end of the covered period to begin repayment.
Repayment of the unforgiven portion of the PPP loan Repayment was due within 2 years, with interest at 1%. Repayment is due within 5 years, with interest at 1%.

One of the primary provisions of the PPP was that employers maintain their workforce at the same level as they had in earlier periods, and the PPPFA gives additional time (until December 31, 2020) to accomplish that goal. However, if an employer can document that it was unable to rehire the same individuals, or similarly qualified employees, or to return to the same level of business activity as it had prior to February 15, 2020, then its PPP loan forgiveness will not be impacted.

A borrower who already received a PPP loan prior to the enactment of the PPPFA may optionally elect to have the covered period end in accordance with the original terms, that is, eight weeks after receipt of the loan proceeds. This option might be useful if a practice can meet the staffing and pay rate criteria by June 30 but might anticipate future staff reductions and therefore might drop under the levels required for loan forgiveness. The eight-week covered period would also be attractive to a practice that has already spent its PPP funds and can wrap up its forgiveness application filing in a timely manner.

Those practices that are using their PPP to fund payroll for individuals who earn $100,000 or more will find that they will be able to obtain forgiveness for a larger amount of such payroll. The original eight-week covered period allowed a maximum of only $15,385 to be forgiven (8/52 x $100,000). But with the 24-week covered period, the maximum will now be $46,154 per person.

In many cases, this new legislation will make it somewhat easier for employers to achieve forgiveness of all or part of their PPP loan. Note that the program changes made by the PPPFA necessitate changes to the PPP Loan Forgiveness Application that was released recently.

Rebecca Farrington serves as the chief revenue officer for Healthcare Administrative Partners. She has more than 20 years of experience in healthcare sales and management roles, focusing on hospital-based and physician revenue cycle management.

The comments and observations expressed are those of the author and do not necessarily reflect the opinions of LabPulse.com.

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