Meet the ex-Perts '5-Stars' Practice Building Consortium™

Practice Building Webinar Series

Good afternoon everybody this is Dr. Cosentino and I am the President of Empire Medical Training. Welcome everybody. Today we have an interesting webinar and actually we're doing a lot of these webinars now, this is something that we're going to be continuing to do.

This week we have two webinars going on, today we have a very renowned attorney and her name is Sharon. Sharon is with MSK consultants and she's been an attorney now for over 20 years.  We are going to talk to her about some specifics as pertains to the COVID 19 crisis and what the administration is doing which is a little bit late.

Hopefully a lot of you have already been working on this and working on submitting applications and everything, but we've gotten so many questions. This is really a great opportunity to ask your questions to, um, to hear this one more time, because this information is so important and in a lot of cases we're talking about free money.

It's really something that you want to make sure that you're not missing out on. There's a lot of great opportunities here.

Right now, I'd like to introduce Sharon and there's so many things to discuss - I have my notebook out as well. I'm going to take some notes because what she's going to go over is very important. Hopefully you know most of this, but I have a feeling you're going to learn some new things.
Let's really try to take advantage of this. And do this correctly and not make mistakes. Cause I know even some people that I talked to, there's, there's things we don't know about this PPP, this payroll protection such as are you allowed to include independent contractors or is it just for employees?
We are going to do this a little bit differently potentially than other webinars and we're going to have someone answering a bunch of your questions as they come in. If we are unable to answer them because they're extremely specific or we don't get to them in a timely fashion through this presentation, we will be following up.

As you're asking the questions, you will be seeing responses and if not, we will follow up with you.  I want to start off with a little bit of a disclaimer that also puts into perspective what we're dealing with, currently as you know things are changing by the minute. The regulations are changing, the eligibility aspects are changing, and we literally, where we used to see regulatory bodies and agencies and legislatures taking weeks and months to give us answers it is happening in real time.

By the end of this presentation we will probably see more changes, so everything that we're covering right now is how it is right now, this minute.  I say that only because I don't want anyone to leave here and then see all of a sudden this didn't apply, or the percentages changed, or something like that. That is very possible so I just wanted to throw that out there so that everyone is aware of that. So today we're going to talk about the Cares Act.
Let me just give you a very quick overview, The Cares Act has established some new programs and has expanded on several loan programs that are purposefully intended to provide liquidity to small businesses during this crisis, including physician practices to which the medical industry, small businesses would qualify. There are several loan programs potentially available. I say that to you because we are only going to cover one of the loan programs today, but you can go to the SBA website for additional information on the litany of options.  The AMA which has done a great job on its website by providing an excellent summary with detailed information of the other loans that you might be able to apply for, and other relief and tax relief simultaneous with the PPP.

Today we're focusing only on the SBAs new loan called the PPP program, it's a program for small businesses, the payroll protection program, which is very commonly referred to, and you'll hear it referred to as Payroll Protection Program. The Cares Act - PPP basically has created a forgivable loan program for businesses and certain not for profit companies and is very specific.  The real aspect of this that makes this such a loan that everyone wants is the forgivable part, which we will get to towards the end of this presentation.

It is up to a hundred percent forgiveness, including the interest that accrues on the actual loan. The maximum loan amount is $10 million, and currently there is about $349 billion that have been allocated to this program. The reason I say currently is that we're hearing a lot of cases chatter in my industry that there will be at levels beyond that that will be added to through program additions. Future funding might have some variations to the program so we will most likely be seeing additional funding coming from this program. The purpose of all of these programs is to keep small businesses afloat during this critical time and to allow businesses to pay their employees.

This is 100% focused on continuation of the businesses, small businesses, particularly in paying employees. You are going to look at this very differently than your average loan because the key components are going to look a lot more relaxed than a regular loan, and that's being done on purpose. First of all, there is no personal guarantee required to obtain this loan - absolutely no personal guarantees and there is also no personal liability for repayment. The only caveat to this is unless an entity entered into this in a fraudulent way. If you're not able to repay the loan, it will not then go to a personally liability situation, which is a big plus. There is no collateral being asked for.

There is no SBA. Administration fees. It is a two-year term loan with no prepayment penalties. So if you get the loan and you decide that at some point you don't need all of it, you can't spend all of it the way it's intended to be spent and if you don't want to keep the loan, you can prepay it immediately with no penalty.

It is an extremely low interest rate of 1% and the deferment of the payments is going on with no payments for six months from the loan date. The interest will accrue, but you will not have to make any loan payments again with the intention of allowing businesses to stay liquid with the intention of allowing businesses to pay their bills and pay their employees.

Let's talk about the initial eligibility criteria, and why I say initially is there's obviously all sorts of nuances, different types of businesses that are not able to apply, different caveats and different aspects that will affect eligibility. But by and far, the initial eligibility criteria is very simple and straightforward for a maximum of 500 employees - you cannot have more than 500 employees.

The business must've been in business since February 15th, 2020 and obviously at the start of the crisis. The business must also have had employees that were paid wages. We will talk about this because some companies, entities, and some practices have already dismissed some employees and reduced salaries and wages - we will cover that.

Initially you have employees that are paid wages and the business must attest that the entity has suffered financial hardship due the COVID 19 pandemic and the loan is needed to maintain operations. So it is a very simple criteria when it comes to the actual loan criteria.
Let's talk about the maximum of 500 employees. How is an employee defined, because there is a lot of confusion outside about the independent contractor status and that answer is very clear. For purposes of this act, the employee is defined as either part time, full time, and officially others that fit into unique categories like foreign employees.

In a nutshell, all of the part time and full-time employees are counted - independent contractors are not counted. They are not counted no matter what they do for your entity, if they are a Form 1099 independent contractor, they are not counted in your numbers which is an important distinction.
There is an affiliated ownership analysis meaning that if you have multiple entities, companies, corporations that are affiliated based on what the percentage ownership is.  You will be combining the employees to one sum number and obviously and you will have to check with professionals on that and we can assist with that individually.

This is how you get to number of employees separately from the small businesses. Proprietorships, independent contractors, and self-employed individuals may be eligible to apply at the deadline that is open for those type of entities.  While you cannot include independent contractors and your account, independent contractors can potentially apply on their own.

Moving to the loan amount calculation, and this is an important distinction. There seems to be some confusion out in the public regarding how you reach the loan amount that you could be eligible for.  It is a very simple analysis with regards to what they're including - how you get to that number's a little different but the analysis itself is very simple.

First, you look at either your previous 12 months or starting from the time you're applying for the loan or your 2019 average monthly payroll costs.  Whatever the monthly payroll cost is and multiply that by 2.5. Now, when you're looking at the actual calculation of salaries, if there is a maximum of $100,000 per person for the annual salary to be calculated.

If someone is making more than a hundred thousand dollars a year, you would reduce the amount. Their salary in your calculation to 100,000 and that is the number you would use when you're doing your average monthly payroll costs. We will discuss the definition of payroll costs in a few minutes. The maximum loan amounts, again, as I stated before, it is $10 million.  I have a little note on the side because this question has come up quite a few times. You can apply for both the IDL disaster loan directly with the SBA and this loan that we're talking about, the payroll protection program loan (PPP), but they cannot be duplicated with regards to the use of the funds. So as long as you're using the funds for different purposes, you can apply for both. We're going to discuss what payroll costs are because this is the number that you use which is the monthly payroll costs and multiply by 2.5 to get your loan amounts.  So, what can be included in this?

Wages, salaries, commissions, cash, chips, and again, up to $100,000 per employee cap. When you're doing your calculations, you can also include health insurance, provision costs and premiums but only the employer portion though. If you contribute a certain amount for health insurance, your employer portion would be calculated in this number.

Paid vacation days, paid PTO days, paid sick days, and other paid leave is included. Additionally, employer portion of retirement benefits. So again, if there's a split where you're making contribution and the employees are making the contribution, you're only including the employer portion. Additionally, state and local taxes that are assessed on employee compensation.

Then there is also an allowance for separation or dismissal costs these are all the factors calculated in the number. When you get all of this put together and you do the monthly average, you multiply that by 2.5 to get your own amount.

Employees that were laid off workers or reduced salaries between February 25th and up until April 26 but plan to use the PPP loan proceeds to restore said workers can include those amounts in the loan request.  If you unfortunately had to lay off two or three people after February 25th because of this situation, they are no longer obviously on your books.  You can include their salaries, wages, health insurance premiums that you paid for when you're doing the monetary requests for and using the 2.5% multiplier to get your loan amount, and that will tie in to the usage of the funds. What is not included in the definition of payroll costs when you're doing your calculations?

Individual employee compensation in excess of a hundred thousand per year, so you would just pro rate that down. Federal taxes assessed on wages such as FICA employees with primary residence. Employees outside the United States are not included, so they cannot be calculated in your numbers and any payments to 1099 independent contractors. So, not only do independent contractors not getting included in your count, you cannot use any payments that you made to independent contractors or the known amount.  If you use someone that comes in to do physical therapy for patients or any type of services that are on a 1099 independent contractor status, that does not get included.

Let's move to the loan application and this slide has changed multiple times because the status of what is going on with these applications is in flux.  Every bank is scrambling and trying to get their portals up, trying to get their applications up and trying to figure out how to run this program.
It has been a rat race to the front door at the banks, some lenders began accepting applications on April 3rd as reported in the news, but I will tell you that most banks and lenders did not start on the third and some of them have not started at all yet in accepting applications.
However, you have some of your bigger banks like Wells Fargo that is no longer accepting any applications at all as of April 5th so they actually opened their line April 4th for only their customers. Then Wells Fargo closed their line on April 5th saying that they exhausted their 10 billion lending capacity already.

This is a very important point that you know that some of the banks have started. Some of them have already exhausted their amounts and that's why we also believe that we're going to see additional funding coming through. Most banks are only accepting current business customers. Now, what do I mean by that?

We have a lot of people that are running at to their banks and they are only focusing on their main bank, but I'm stressing to you that you should look at any bank that you have a banking relationship with.  The first thing you should do is call your banker or any contact you have at those banks or go online.  If you don't have any contacts and see what the status is for every single bank that you have a relationship with there are a growing number of lenders that we are seeing right now that are accepting applications from new business customers.  While most of them such as the Wells Fargo, Chase Bank, Bank of America are only accepting their current clients you will see some of the other banks now are opening it up for new business customers and you can usually find that on their websites.

The applications themselves are only online applications that are going through the bank websites. What is usually happening right now is either you reach out to your banker and they will email you a link to the portal to start the application process or if you're going to the websites, you will see more information about the PPP loans.  The application will have you fill out six questions such as title, name of business, EIN number, and messages such as we'll get back to you if and when we are able to process your loan. All supporting documentation and the application itself is being done online.
Upload the supporting documentation with the application at the time of submission. What is the supporting documentation? Every bank is slightly different, so when you actually communicate with your bank or you go online, you will see what they are requiring.  As a general rule, we are seeing the minimum required documents are the 2019 payroll data and 2020 payroll data - IRS forms 941, 940 and W2 summaries.  Every bank has its own requirements for the loans as far as documents.

Let's talk about loan usage and what the purpose of the loan is, and it will reflect and let alone usage parameters.  The loan can be used for payroll costs. employee salaries, wages, commissions, mortgage interest, and only the interest portion of a business mortgage that was obtained before February 15th, 2020 - so nothing after that date. In addition, any rent that is a business rent, not personal for any leases that were entered into the business before February 15th, 2020 and then utilities.

What does that cover? Electric water, sewer, propane, gas, cellular phones, landline telephone service, internet and transportation. These services must have been in place. prior to February 15 so you can't go out and now sign up for all sorts of services and think that you could use that from this loan.
Also, the healthcare benefit associated with the loan; costs and premiums including only the employer portion of the premiums and interest on certain debts that were incurred before February 15th, but these are the categories of items that the loan can be used for once you're approved for the loan.  When you are applying for the loan, they are relying on good faith certification.

There is a lot less inspection by the banks into every single aspect of this because of the quick nature of the loan itself. They want the money to get out to the small businesses as soon as possible so that the employees can get paid and so that people are staying afloat.  The applicant must certify the need for the loan is based on the current economic conditions and the funds will be used to maintain workers and for the items that we just detailed previously and that there are no duplicate applications for the same funding.

The applicant will provide all required supporting documentation and post loan requirement documentation as we've covered already and that the information provided is truthful.  This is all on the application, you have to initial next to every line item that says this - now we've applied for our loan. We've calculated the loan amount. We know what we're allowed to use it for. The big question is how do we get loan forgiveness because this is the part of the loan that is making small businesses very interested in this low, basically free of keeping everyone afloat.
You can get up to a hundred percent of the loan including the interest if the loan is used properly for forgivable purposes, limited to the 8-week period following the loan date. What does that mean?  On the day you get the loan, you now have eight weeks to spend that money properly on the items that are forgivable.

If you do that at the end of the eight weeks, presumably you could be entitled to up to a hundred a hundred percent of loan forgiveness for all the money that was spent properly. The forgivable uses which is spending properly, payroll costs need to be at a minimum of 75% so you need to spend 75% of the loan funds on payroll costs. 25% would be attributable to non-payroll costs. Next payment of interest and interest only on the business mortgages, I bet were incurred before February 15th and rent.  Business rents, payments on leases that were dated before 02/15 and the utilities that we covered for services that were entered into before 02/15.

The split needs to be 75% on payroll costs and 25% on the other three items that you see listed as the items that can be forgiven. There is also going to be a requirement for certification that the loan was used to maintain employees and continue business operations.
You will have to provide documents verifying the number of employees and the pay rates by way of IRS tax filings, unemployment insurance filings, anything of that nature. You will have to provide proof of payment of utilities, mortgage interest and rent. Then of course line items with everything else, a certification that all information and documents are accurate.

These are the minimum things that we now know will be required for the loan forgiveness. We have no idea how this will evolve and what else they may or may not require for the loan forgiveness, but right now this is exactly what they're saying and what they're going to need.
Lenders have 60 days from the date that the borrower provides all the required and requested information and the documentation to make a forgiveness determination.  Just like the loan application, it is up to the banks to determine if they are going to provide and determine what forgiveness they will or will not be given for the loan based on what you provide them.

Forgiveness is an amount of up to a hundred percent and this is the next little point is the cabinet. When I talked about what happens if you don't maintain your employees at a similar level to where they were before salary-wise forgiveness is based on the employer maintaining or quickly rehiring employees once they get the loan and maintaining salary level.

The loan forgiveness will be reduced if full time head count declines or if salaries and wages decrease.  There are all sorts of formulas that the banks are going to apply if you reduced your workforce such as if you reduced wages for your employees, if you took away certain benefits like health.
That is just something to consider when looking to a hundred percent forgiveness, however all these little factors will come into the analysis if you made changes that don't go hand in hand with the purpose of the act and the law.  I know that's a lot of information and a lot of technicalities but we wanted to give you a run through of everything that we know now with this particular loan.

Obviously, there are a list of entities that are not able to qualify for this loan and there are some caveats with regards to other aspects of the loan that is individual based and needs to be analyzed.  I cannot urge you quickly or enough to call your banker or lending agent as soon as possible.  Let them know that you plan to apply for a PPC loan and let them know that you want to know exactly what the timeline is and what you need to fill out with them.  Find out how do you get in these virtual lines right now and find out what guidance they can provide you. Most banks have a list of what is required and have it on their websites.

There are other lending agents, not just banks processing the PPP loans, so you need to look at that as well. And if you go to the SBA website, they do have information about other qualified lenders and not just banks, but your first step should be your bank.  When I say your banks, any banks that you have a business relationship with, and I would contact them directly.  I will also tell you that you should start compiling all of the necessary information and documents - there is a lot to get together.

There is a lot of information that needs to be looked at, analyze, and calculated so that you can get your loan amount up to the 2.5 times your monthly payroll average.  This is the time to get that all done and of course we are here to help so you have our contact information e and we will be reaching out to any questions that were not answered during this time as well as providing you a follow-up email for you to be able to communicate with us directly if you have any further questions. I thank you for your time this afternoon and I'd like to turn this back to Dr. Cosentino at this time and thank him for this opportunity.

Thank you Sharon, that was great information - Thank you very much!