Your Health Care Practice Can Get Up to $10 Million in COVID-19 Emergency Loans

A new federal emergency loans plan is giving small businesses — including health care practices — a lifeline to keep their payroll costs, mortgage interest and other debt under control during the Coronavirus (COVID-19) pandemic.

Starting Friday, April 3, 2020, health care providers may apply for up to $10 million in emergency loans under the Small Business Administration (SBA) Paycheck Protection Program (PPP).

We at Chapman Law Group see this as great news for our health care provider clients. This loan program will allow family physician practices, urgent care clinics, pharmacies, physical therapy centers, massage therapy clinics, dental offices and pain clinics to confidently sustain their practices during COVID-19.

If your practice is facing financial distress due to the Coronavirus outbreak, we strongly recommend looking into this opportunity. Here is a breakdown on how it works — and how it can work for you.

Where Do These Emergency Loans Come From?

The U.S. Department of the Treasury and the SBA has earmarked $350 billion for the SBA PPP program, which is part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

How Do I Know If My Health Care Practice Qualifies for an SBA PPP Emergency Loan?

If your practice has been in operation since February 15, 2020, and you have no more than 500 employees (full time, part time and any other status), your business is eligible.

What Will Lenders Require?

Besides the 500-employee limit, lenders must also confirm that your health care practice:

  • Needs this emergency loan for ongoing operations due to “the uncertainty of current economic conditions”
  • Will use the emergency loan to retain workers and maintain payroll or make mortgage, lease and utility payments
  • Does not have a pending loan application for the same business purpose and amounts applied for in the SBA PPP emergency loan
  • Has not received a loan for the same business purpose and amounts applied for in the SBA PPP emergency loan, from February 15, 2020, to December 31, 2020. (However, your practice could be eligible to fold emergency loans made between January 31, 2020, and the date the SBA PPP emergency loan program becomes available, into a new loan.)

What Will Lenders Not Require?

Lenders will not need confirmation that your practice sought, and was unable to obtain, a loan elsewhere. Also, neither a personal guarantee nor collateral are required for the emergency loan.

How Much Can My Health Care Practice Borrow?

You may borrow up to 2.5 times your practice’s average monthly payroll costs, not to exceed $10 million.

How Do I Determine My Average Monthly Payroll Costs?

To do this, you must determine and differentiate “included payroll costs” and “excluded payroll costs,” then subtract the latter from the former.

An “included payroll cost” is “the sum of payments of any compensation with respect to employees that is”:

  • Salary, wage, commission, or similar compensation
  • Payment for vacation, parental, family, medical or sick leave
  • Allowance for dismissal or separation
  • Payment required for the provisions of group health care benefits, including insurance premiums
  • Payment of any retirement benefit
  • Payment of state or local tax assessed on the compensation of the employee

“Excluded payroll costs” are:

  • Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 2020
  • Payroll taxes, railroad retirement taxes, income taxes
  • Any compensation of an employee whose principal place of residence is outside of the United States
  • Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116-5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act

What Are the Terms of the Emergency Loans?

  • The SBA PPP emergency loan interest rate is set at 0.5%.
  • Loans mature after two years.
  • Lenders are expected to defer fees, principal and interest for no less than six months and no more than one year.
  • All loans will have the same terms regardless of lender or borrower.
  • Loan payments will be deferred for six months

Will My Health Care Practice Be Eligible for Loan Forgiveness?

Your health care practice may qualify for loan forgiveness equal to the amount you spent on the following items during the eight-week period beginning on the date of the origination of the loan:

  • Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
  • Interest on the mortgage obligation incurred in the ordinary course of business
  • Rent on a leasing agreement
  • Payments on utilities (electricity, gas, water, transportation, telephone, Internet)

(Note, though, that the loan forgiveness cannot exceed the principal.)

Is It Possible for the Loan Forgiveness to Be Reduced?

Yes, so long as there has been a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.

Can I Apply for More Than One Emergency Loan?

You are allowed to apply for one emergency loan per business entity. This means if you have multiple health care entities, you can apply for multiple loans.

Where Can I Apply for the Emergency Loans?

Starting April 3, 2020, health care practices “can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program.”

You may find a sample SBA PPP application form here

Talk to the Experts First

Before you apply for an SBA PPP emergency loan, you should seek guidance from your CPA, SBA-certified lender or financial consultant on whether this program is right for your health care practice.

For concerns over whether your health care practice is keeping in compliance and following regulatory procedure during the Coronavirus pandemic, we at Chapman Law Group are here for you. Our health care attorneys will keep you apprised on new COVID-19 developments that have a direct effect on your business. Reach out to us today.

Need an Attorney? Contact us now!

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