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The application for the Paycheck Protection Program (PPP) recently opened and VHA Business Services wanted to take a moment to provide an explanation about the program as well as the requirements for it. 


The Paycheck Protection Program and Veterinary ClinicsAbout the Program

According to the Small Business Association (SBA), the PPP is “a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.” The reason this program is going to be popular is that the SBA will forgive the loan if: 

  • All employees are kept on the payroll for eight weeks; 
  • And money is used for payroll, rent, mortgage interest, or utilities. 

If you are not eligible for loan forgiveness, the loan has a maturity of two years and an interest rate of 1%. 

Payroll costs can include: 

  • Salary, wages, commissions, or similar compensation to employees whose principal place of residence is the United States; 
  • Cash tips or the equivalent (Based on employer records of past tips or good-faith employer estimates); 
  • Payment for vacation, parental, family, medical, or sick leave; 
  • Allowances for separation or dismissal; 
  • Payment for employee benefits including group health care coverage, insurance premiums, and retirement; 
  • Payment of state and local taxes assessed on the compensation of employees; or 
  • For an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation. 

Exclusions to payroll costs include: 

  • Compensation for employees who reside outside of the United States; 
  • Compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary; 
  • Federal employment taxes withheld between February 15 – June 30, 2020, including FICA and Railroad Retirement Act Taxes, and income taxes required to be withheld from employees; and 
  • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act. 

Independent contractors do not count as employees for the purpose of PPP loan calculations because they can file for the program themselves. 

This program will be available until June 30, 2020, and businesses 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. 

This program is not just for anyone – it’s specifically for any small business with less than 500 employees that have been affected by COVID-19. It is also on a first-come, first-served basis. Eligible organizations include: 

  • Sole proprietorships 
  • Independent contractors 
  • Self-employed persons 
  • Private non-profit organizations 
  • 501(c)(19) veterans’ organizations 
  • Businesses in certain industries that have more than 500 employees if they meet certain SBA standards for those specific industries 
  • Hospitality and food industry small businesses with more than one location and individual locations employ less than 500 workers 

Requirements

As stated earlier, this loan may be forgiven if the business keeps all employees on the payroll for eight weeks and the money given is used for payroll, rent, mortgage interest, or utilities. As of April 6, the SBA states that at least 75% of the forgiven amount must have been used for payroll. In addition, “Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.” 

Additional eligibility requirements that you must have been in operation on February 15, 2020 and either had employees for whom you paid salaries and payroll taxes or paid independent contractors as reported on a Form 1099-MISC. You must submit the proper documentation needed to establish eligibility, such as payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses from a sole proprietorship. 

If you do not have that information, you must be able to provide supporting documentation such as bank records that are sufficient enough to demonstrate qualifying payroll amounts. 

If you or a business owned and controlled by you has obtained a direct or guaranteed loan from SBA or another federal agency and is delinquent or defaulted on the loan within the last seven years, you are not eligible for the program. 


How Much Can I Borrow?

The maximum loan amount is the lesser $10 million or an amount you calculate using the payroll-based formula outlined below: 

  • Step 1: Aggregate payroll costs for the last 12 months. 
  • Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,00 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year. 
  • Step 3: Calculate the average monthly payroll costs (Step 2 divided by 12) 
  • Step 4: Multiply Step 3 by 2.5 
  • Step 5: If you applied and received an Economic Injury Disaster Loan between January 31 – April 3, 2020, add the outstanding amount less the amount of any “advance” under an EIDL COVID-19 loan as it does not have to be repaid. 

Examples:

No Employees Over $100,000

  • Step 1: Annual payroll is $120,000 
  • Step 2: No employees are over $100,000 so skip 
  • Step 3: Average monthly payroll: $10,000 ($120,000 / 12) 
  • Step 4: Multiply $10,000 by 2.5 = $25,000 
  • Step 5: Skip 
  • Final: Maximum loan amount is $25,000 

Few Employees Over $100,000

  • Step 1: Annual payroll is $1,500,000 
  • Step 2: Subtract compensation amounts in excess of an annual salary of $100,000: $1,500,000 - $300,000 = $1,200,00 
  • Step 3: Average monthly qualifying payroll: $100,000 ($1,200,000 / 12) 
  • Step 4: Multiply by $100,000 by 2.5 = $250,000 
  • Step 5: Skip 
  • Final: Maximum loan amount is $250,000 

Few Employees Over $100,000 + Outstanding EIDL Loan of $10,000

  • Step 1: Annual payroll is $1,500,000 
  • Step 2: Subtract compensation amounts in excess of an annual salary of $100,000: $1,500,000 - $300,000 = $1,200,00 
  • Step 3: Average monthly qualifying payroll: $100,000 ($1,200,000 / 12) 
  • Step 4: Multiply by $100,000 by 2.5 = $250,000 
  • Step 5: Add EIDL Loan of $10,000 = $260,000 
  • Final: Maximum loan amount is $260,000 

Conclusion

The amount forgiven depends on the total amount of payroll costs, payments of interest on mortgage obligations, rent payments, and utility payments – all incurred before February 15, 2020 – over the eight week period following the date of the loan. Not more than 25% of the loan forgiveness amount may be attributed to non-payroll costs. 

It is imperative that businesses have their bookkeeping and payroll in order and keep a meticulous record of the payments made utilizing the funds borrowed through the PPP program. VHA Business Services has been supporting veterinary clinics in maintaining and improving their bookkeeping and payroll processes. We are continuing to support our members by keeping clear and concise records of funds distributed through these loans. If you are in need of help or support with tracking all your payments made with these funds, please let us know we are here to help support you.    

If you are interested in learning more about these services, please contact This email address is being protected from spambots. You need JavaScript enabled to view it.

Additional Info

  • Lead In The Paycheck Protection Program, or PPP, can make an incredible difference for your veterinary practice during COVID-19. VHA Business Services explains the program and how much your clinic can borrow if you apply.
Published in COVID-19
Monday, 11 May 2020 02:15

Updated Paycheck Protection Program FAQs

I continued to be amazed at the adaptability of the veterinary industry. Each day, a new hurdle has been put in your way. Being told what services you are or are not allowed to perform in your clinic, being responsible for the direct health and safety of your employees and clients in a whole new level you never imagined, coordinating technology that has become essential to your everyday existence, and finding a way to keep your doors open every day. There are many options, opportunities, and resources out there to help you with these immense amounts of decisions and issues. VHA is one of many, and if at any time you have any questions, concerns, ideas, or just need someone to talk one of your decisions through with, please reach out to us and let us be there for you. Any of our VHA staff is more than willing, and if we don’t know, we will help find out for you! 

New information, thoughts, and opinions about the Paycheck Protection Program continue to pop up daily, while solid regulations and guidance from the SBA and Department of Treasury are lacking. We have been working to stay up-to-date on it all to help you stay current and make informed decisions. We continue to work on staying current on all of the new details and also are working on helping keep you organized to guarantee as much as possible so that your forgiveness comes through when it is time. With all of that in mind, we have developed a few FAQs below that we will try to continue to add to as things further develop. Some are revised from before as new information is made available, and some are new.  If you have anything not answered here, please let Business Services know.


If I have not applied for a PPP loan, am I too late? 

Yes and no. Currently, the PPP through the SBA has been refunded by Congress, and the SBA opened to new applications. However, this time around, the SBA has limited the banks on the number of applications that are processed per hour from each bank. So far, the funds have not run out, but the banks are still working through the applications that were backlogged from the first rounds as well. If you have not applied, I encourage you to contact your banker and inquire if they are still taking applications. Many banks are still accepting applications and could give you a better idea of where you stand in the queue.  


If I applied but have not heard back yet, does that mean I did not get the loan? 

Not necessarily, especially if your loan is still from the first application wave and is being submitted in this latest application period. However, please make sure to reach out to the banker that was processing your application. They might have more insight.


Does the forgiveness period end on June 30th? Do I have until then to get my payroll back up to date?  

No, once you receive your funds, your eight-week period starts then. June 30th was the last possible date for application. The intention of this program is to encourage businesses to bring back their staff to full-time sooner rather than later. Once you receive the loan, it is intended that you are supposed to bring back your staff to full time. 


What if I do not have the sales, business, or hours to support my staff at full time now?  

Whether you have the sales/work or not, I would encourage you to be creative in coming up with things for your staff to do. It does not have to be the traditional workload. You can have them do more CE, file, do callbacks, call reminders, call and check in on your patients just to see how they are doing, have them do clean up around the outside of the clinic, or have them come in after-hours and give your clinic that spiffing up you have intended to do but have not had the time to do in a while However, the goal of this program is to have employees on payroll and not unemployed, so even if you do not have work for them to do, it is encouraged that you pay your employees anyway instead of keeping them laid off or on reduced hours.


We received the PPP money, but we have an employee that is on unemployment and does not want to return. Our understanding is that our FTE needs to be back to what it was before February 15th. Will this create an issue in getting our loan reimbursed?

The SBA released that no, however, there are stipulations. The employer must show in good faith a documented written offer of rehire, and the employee’s rejection of that offer must be documented as well. Please keep in mind that the employee’s rejection of that offer of re-employment in most cases may forfeit their eligibility for unemployment insurance.  In these cases, please remember that an employee continuing to collect unemployment insurance while either receiving full compensation or being offered re-employment and declining could be considered fraud and result in penalties and need to repay the money received. Also, as an employer, knowing of an employee doing so and not reporting it to the Unemployment Office may hold you liable as well. We strongly encourage you to document your interactions with this employee.


We received the PPP money, but we are currently in the middle of a pay period. Do we need to run a separate payroll?

I am under the impression no. With payroll taxes and other liabilities related to payroll expenses, they typically are applied accounted to the pay date of that payroll. With this government-funded program, I assume it will be a similar concept that the payroll dates that are counted to your 8-week period will be the pay dates of those payrolls. They would be counting the day the funds are paid out, not accrued on a day-by-day basis.


Now I have the money from the loan, do I need to do anything differently with it?  

Yes! You will need to track that money and show a trail of exactly what you spent it on. This is key to getting the loan forgiven. The process is not 100% determined yet, and each lender will be the one you are asking forgiveness from, but they have not received the guidance yet. So with the end result unknown, the best course of action is to keep extremely detailed records. It is impossible to go back in history and redo something, so make it easy on yourself and overdo it now, so you don’t have to worry about it later.


What are good ways to track the money?  

There are a couple of options that all would work. We have provided a few options but encourage you to consult with your CPA on if they have a preference.

  • Put the money directly in a separate account, savings, or checking and run all expenses through that account.
  • Set up a class within your Quickbooks so you can tag all the appropriate expenses with the PPP class tag. Then you can run a Profit and Loss statement for just that class code.
  • Create a holding account in your Chart of Accounts for these funds.

Right now, you do not know if the funds will be forgiven or not, so you can run the expenses through that account and thus track them all back to that specific money. Once you know the money has been forgiven or not, you can account for that liability account in the appropriate place in your balance sheet.


I have heard that the SBA is reviewing loan applications?  

The SBA announced that they would be reviewing all loans to make sure they met eligibility requirements. They have initiated a period until May 14th that you may repay the loan and be considered to meet the criteria that you made the required certification in good faith. If you are not repaying the loan before that date and intend to keep and use the loan as it was intended, it is recommended that you document your reasoning that you met the requirements of the loan, mainly be able to be confident in your reasoning behind the application.


Are there restrictions on what I can use the money for?  

Yes. 75% of the loan needs to be used for payroll costs.  


Is the loan forgivable? 

Yes. The amount determined for forgiveness depends in part on how much you spend in the eight weeks. The amount of your payroll returning to normal is important for two reasons. First, if you have not shown strides in returning your workforce, then based on the purpose of the program, you could stand not to have our loan forgiven. Secondly, if you do not spend as much on your payroll as you usually do, thus you do not spend the full amount you were given the loan for, not all of it will be forgiven. They will not give you extra money beyond the outline of what they are giving you the funds to begin with.


For additional details, please visit SBA – Final Rule for PPP.  For FAQ’s from the SBA, please visit SBA – PPP FAQs.

Additional Info

  • Lead In VHA Business Services continues to keep an eye on changes regarding the Paycheck Protection Program (PPP). Erin Potts details some key changes and advice on how to track the funds appropriately.
Published in COVID-19