Aesthetic practice owners all across the country are preparing for their imminent opening as numerous states enter “Phase One” of non-essential / elective medical reopening. From relaunch checklists, to updated operational procedures and patient affidavits – it’s now time to enter our new normal.
Especially relevant right now is the PPP loan forgiveness. As of May 15th, the Small Business Administration (SBA) released the PPP loan forgiveness program. Our team has been monitoring actively through the Aesthetic Business Institute (ABI) key data related to the PPP. We’ve also been advised by our attorneys at Brenner, Saltzman & Wallman LLP (BSW) on their initial review of the recently released application. Detailed below are these findings from BSW as well as data shown from ABI.
Loan Forgiveness Application: Click Here
Alternative Payroll Covered Period
A borrower with a bi-weekly (or more frequent) payroll schedule can choose to calculate its eligible payroll costs using the 8-week period following the date of the PPP loan disbursement (the “Covered Period”), or an alternative 8-week period that begins on the first day of its first pay period following the date of the PPP loan disbursement (the “Alternative Payroll Covered Period”). For example, if a borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is Sunday, April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.
Calculating Full-Time Equivalent Employees
Full-time equivalent employees (“FTEs”) should be calculated using a 40-hour workweek. To calculate average FTEs, for each employee the borrower should take the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum FTE for each employee is capped at 1.0.
Eliminating Reductions in FTEs
A borrower has until June 30, 2020 to eliminate any reductions in its FTEs made between February 15, 2020 and April 26, 2020. A borrower is exempt from a reduction in loan forgiveness based on FTEs if the borrower restores its FTE levels by not later than June 30, 2020 to its FTE levels in the pay period that included February 15, 2020.
FTE Reduction Exceptions
A borrower’s loan forgiveness amount will not be reduced due to FTE reductions if the borrower made a good faith written offer to rehire an employee during the Covered Period or the Alternative Payroll Period, as applicable, which was rejected by the employee. A borrower’s loan forgiveness amount will also not be reduced if, during the Covered Period or the Alternative Payroll Covered Period, an employee: (a) was fired for cause; (b) voluntarily resigned; or (c) voluntarily requested and received a reduction in hours.
Eligible Nonpayroll Costs
Eligible nonpayroll costs must be (i) paid during the Covered Period or (ii) incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount and are limited to the following items: (a) payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020; (b) business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020; and (c) business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access, which service began before February 15, 2020.
Eligible Payroll Costs
Payroll costs incurred but not paid during the borrower’s last pay period of the Covered Period or Alternative Payroll Covered Period, as applicable, are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period or the Alternative Payroll Covered Period. Payroll costs are considered paid on the day that paychecks are distributed or the day the borrower originates an ACH transaction, and are considered incurred on the day that the employee’s pay is earned. For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the Covered Period or Alternative Payroll Covered Period, as applicable.
The Application and instructions detail what documents a borrower will need to submit to its PPP lender along with the Application. The Application also details what documents a borrower is required to maintain but is not required to submit to its PPP lender. We strongly encourage businesses to review this list and begin compiling required documentation.