As you've probably read, today practice owners got a belated holiday gift from the American Government: the Consolidated Appropriations Act. This bill is a 5,000+ page document with lots of bells and whistles which affect many Americans, but this short email will focus on what practice owners should know about their PPP loans as well as two stimulus benefits that were noticeably absent from the bill.
Over 80% of PPP recipients were businesses who received $150,000 or less. As if the application process was not difficult enough, banks have been struggling with forgiveness. The new legislation has made loans les than $150,000 forgivable with a one-page form and no documentation, a relief to both banks and practice owners who have not yet applied for forgiveness. Presumably forgiveness should move faster with this streamlined process.
The biggest benefit of this new bill (in my opinion) is the deductibility of expenses PPP funds were used for. This can be a very large number- Many practice owners were expecting to owe $30,000 or more per $100,000 of forgiveness. Owners who were expecting a large tax bill can breathe a sign of relief.
PPP Round 2
The second biggest benefit was the announcement of PPP round 2. Practices that had a 25% decline for any quarter in 2020 versus 2019 (for most practices this will be Q2, April 1 - June 30) qualify for a second round of stimulus, assuming they are less than 300 employees and the loan requested is less than $2mm. I am under the opinion that if those are the criteria and a practice meets it, they should participate. It might be a bit before that application process is available, so keep your ears open but be patient.
Assuming the terms and conditions remain the same, I encourage practice owners who are looking to sell in 2021 to still consider PPP round 2- there has been plenty of precedence and documentation in 2020 to account for PPP loans in the event of ownership transfer. Even if unable to spend the funds before the sale, the amount that was spent on eligible expenses can still be forgiven and the rest repaid.
What wasn't addressed?
Two common questions I get about the bill are related to extension of student loan payment deferrals as well as SBA loan payment deferrals. Neither of these provisions are extended in the new stimulus bill (student loan payments resume January 31, 2021 and SBA loan waivers expire after 6 months).
There is a lot of speculation however about Biden taking executive action to extend student loan payment deferrals or look at the blanket forgiveness he proposed on the campaign trail. However, I suspect this next round of PPP reduces the likelihood that there will be any additional SBA payment waivers.
As I write this, the S&P 500 is up almost 1% for the day and a 2021 is just 4 days away. Best wishes for a safe, healthy optimistic end to 2020 for you, your practice and family.
Happy New Year!