EIDL and PPP – Status Update
We wanted to give you an update into what we’re seeing among our clients regarding the EIDL and PPP loans:
EIDL Loan and Grants (These are the loans applied online directly with the SBA)
- Approvals are just coming in. Clients are receiving an email requesting applicants to create their own SBA EIDL portal. Once created, a client can log in and see the amount of loan they’ve been approved for. They can elect any amount up to the max approved. The user interface is easy to use. We are seeing approved amounts that range from $15,000 up to $400,000. We don’t know why there is so much variations between clients who have very similar practice sizes. It could be tied to their state or possibly to when they applied, with earlier applicants being approved for more. As we uncover the patterns, we’ll know more.
- The EID Grant (or Advance) is also starting to come in for some clients. The amount received is equal to $1,000 per employee up to $10,000. It’s generally being received around the time of receiving the request to set up your EIDL portal. Some clients have said they never received the grant at all, even though they’ve been approved for an EID loan. We have no answer for these inconsistencies.
- It’s important to know what these funds can be used for. The SBA has stated these funds must be used for working capital needs. The SBA website doesn’t make this very apparent, so we are left to make some assumptions that working capital would include your standard overhead (Labor, Labs, Supplies, Facilities, Marketing, and Admin). It can also be used to make your monthly loan payments. It can’t be used to refinance out of pre-existing debt or to expand your practice equipment or practice structure. In other words, this is not a loan to refinance or grow/improve your practice. This is a loan to help pay your standard expenses during the period of economic injury. It’s not clear, but we believe you may be able to pay off existing credit card balance since credit card balances were likely used to pay for general expenses. If that’s the case, and if you have a high credit card balance, you may want to consider taking enough EIDL to pay off your credit cards and get you through to receiving the PPP loan.
- For PracticeCFO clients, we’re keeping detailed records of your expenses each month already as a standard part of our service. We’ll have the records to show where the loan proceeds went, if requested by authorities in the future.
- Since this loan is not forgivable, and can’t be used to refinance existing, higher rate loans, we recommend you take only enough needed to bridge you to the PPP loan. Remember, debt elimination is one aspect of achieving financial independence.
7a Loan, AKA “PPP” (This loan is applied with an SBA Certified Bank)
- Many of our clients have been approved for the PPP loan, but we haven’t had any clients receive the PPP funds yet.
- Congress has stated that the $349B of stimulus allocated to the PPP program will likely be exhausted this week. Our interpretation of this, is that if you’ve been approved this week, or perhaps have your application in, that you’ll likely still receive the PPP loan once your bank approves/funds. We cannot guarantee this of course, and we could be wrong. If you’re a client of PracticeCFO and requested us to complete your PPP loan, we have been working around the clock to submit these timely.
- There is a strong initiative in Congress to approve additional stimulus for the PPP program. House republicans proposed $250B to be available within 48 hours. Congress, however, is doing what they do best and playing politics about it, causing a delay. Both parties want the additional funding, but they generally disagree on the strings attached. We’re hoping those strings can be resolved quickly. If they are, the additional stimulus will allow better “timing” for those dentists that have decided to wait to apply for the PPP loan. PracticeCFO has attempted to inform our clients of the situation, but also been careful to leave it to the doctors decision since we don’t know the outcome of additional funding.
- No banks have told us that you can be approved, then delay the receipt of the funds. We’ve heard of this rumor, but haven’t seen it in action. Banks are required to disburse the funds within 10-days of approval.
- There are attempts to get the SBA to allow the start of the eight-week forgiveness clock to better align with when you can resume full operations, but we have yet to see any update. As it stands, the eight-weeks stars upon receipt of the PPP loan. If you receive it, you’ll have to make the decision to either (1) rehire all your employees to your 2019 levels while many of them will be at home watching on demand, sorry, I mean working on practice initiatives, or (2) wait to rehire them and only receive a forgiveness on a portion of your PPP loan. If you choose to put them back on payroll while still at home, keep in mind these employees will not be eligible for unemployment income since they are now receiving pay. For some employees, it’s possible unemployment income could be higher than what you pay them through July 31st due to the additional $600/week of CARES Act stimulus.
- Remember, the PPP loan repayment period is two years with a six-month deferral, leaving only 18 months to repay once repayment starts. The 1% rate is great. The term is not.
- Remember that PPP loan forgiveness is determined by how much you re-engage your full team, making sure to not give any specific employee more than a 25% reduction in pay. You must also use 75% of the PPP loan on payroll during those eight weeks to receive full forgiveness. If you rehire your full team during the eight week period, you will use approximately 80% of the loan on payroll (i.e. 2 out of 2.5 months). Paying specific employees higher wages during the eight weeks relative to their 2019 individual pay will not increase the amount of loan forgiveness. It’s all about (1) # of FTE (or head count), (2) not giving a more than 25% pay cut to an employee and (3) using 75% of the PPP on payroll
- Some clients have asked about hiring family members, such as kids, that were not previously on payroll to increase their FTE during the eight-week measurement period. At some level that would satisfy the letter of the law, but not the spirit. Under a subsequent audit (if it ever occurred), we suspect this would be reversed with some penalty applied.
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