An SBA Loan Update from Kirk Dewart

Intro/Disclaimer:
Kirk Dewart is a  22-year commercial banker assisting small and mid-sized healthcare practices, including a focus working with dentists and related specialists. Over his tenure, Kirk has worked closely with the American Dental Association, as well as various state and regional dental organizations. Currently, Kirk is consulting for healthcare organizations on the COVID-19 response.

The information shared in his write up is meant to inform members of programs that may be available to aid their practices during the COVID-19 pandemic. Ultimately, it is incumbent on members to consult with their individual accountants, attorneys and other professionals.

On April 24, the Paycheck Protection Program and Health Care Enhancement Act was signed, providing a fresh $310 billion into the Paycheck Protection Program (PPP). This was an additional step to provide small business relief after the original $349 billion in PPP funding was exhausted in just 14 days. The new law goes further to ensure PPP loans are available through a broader base of lenders including $30 billion specifically set aside for community lenders, small banks and credit unions. Another $30 billion has been set aside specifically for medium sized banks and credit unions.  

The bill also included another $50 billion for the Economic Injury Disaster Loan Program (EIDL); however, this funding was set aside to support a large number of application requests previously submitted and waiting for processing. The SBA has not re-opened their system for new EIDL applicants at this time.

As owners of qualifying small businesses, most healthcare practice owners have focused on these loans as vital funding sources to survive various state-enacted quarantine periods, and just as importantly, to ramp their practices back up once these quarantines are lifted. For those who have already applied and are awaiting an approval response, please continue to keep an eye out for a message from the SBA (EIDL), or your lender (PPP). If you have not applied for the PPP loan, now is the time to get yourself organized and ready to apply, as we expect that this next wave of funding for these loans will soon be depleted.

Contact your CPA, along with other key financial advisors. Whether you’ve already applied for one of these loans or whether you are still weighing options, contact your CPA now. They are best positioned to recommend funding options for your practice

Paycheck Protection Loan (Section 7(a) of SBA)                                                                                

The Paycheck Protection Program loan is only available by applying through SBA bank approved lenders. You will likely find it easiest to work with your existing bank, assuming they are offering the loan. Most banks are requiring applicants to have an established deposit relationship with them in order to move forward with a loan request. However, if you have difficulty working with your current lender for any reason, please explore other lenders in your area that may be able to provide you with better service.

The PPP application requires personal and practice information, including financial statements. Each bank is underwriting these loans based upon their own policy requirements. As a result, the amount of information banks require from applicants varies. Following is a summary of the Paycheck Protection Program as of the date of this article:

• Loan amounts are determined by calculating 2.5 times average monthly payroll costs (wages, health insurance, paid time off, retirement benefits and state or local payroll taxes assessed on compensation of employees) not to include federal payroll taxes. Employee/owner compensation is limited to $100,000. Loans are capped at $10 million per applicant.
• Terms: 1% interest rate, up to two years repayment, six months no payments with interest accruing during this time.
• No more than 25% may be used for nonpayroll expenses (such as rent, mortgage, utilities, etc.). The remaining 75% must be used for payroll costs such as salaries, health care benefits, retirement plans, etc.
• Independent contractor employees (1099) are eligible for their own Paycheck Protection Loans, and therefore their salary cannot be included in any calculation performed for loan forgiveness.

A critical feature in PPP loans is the possibility of loan forgiveness.  Based upon the following requirements, all or a portion of your loan may be forgiven.

• The amount forgiven will be based upon the amount of your loan proceeds used to fund payroll and operating costs in the 8-week period which begins the day that the loan proceeds are deposited to your account.
• Loan forgiveness is contingent upon having 75% of your payroll (based upon the number as of Feb. 15, 2020) and the number of employees back on payroll by June 30, 2020.

If you have already applied for the EIDL loan, you may still qualify for a PPP loan. There are stipulations that are important to understand.

• If you use the EIDL loan to fund payroll, you must refinance the EIDL loan into the Paycheck Protection Loan.
• If you do not use the EIDL loan to fund payroll, then you have the option to refinance the EIDL loan into the Paycheck Protection Program. You may want to consider using an EIDL loan to fund costs other than payroll as a result.
• Any EIDL grant you receive will be deducted from the amount of loan forgiveness you receive through the Paycheck Protection Program.

Again, your CPA or other financial expert should be your critical advisor in determining how best to use these loans if at all, separately, or together. There are alternatives to these two SBA loans that are covered by the CARES Act, including critical tax credits that may be more beneficial for your practice to consider. Your CPA can best evaluate those alternatives.

As small businesses, endodontist practices may still take advantage of the Paycheck Protection Program. The loan proceeds can help your practice survive remaining quarantine periods.  And just as important, loan proceeds can help with an effective ramp up of your practice once quarantines is eased. Again, take action quickly to ensure access to a PPP loan that meets your needs.