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7 Steps To Handle Your Staffing Issues Under The CARES Act

March 2020
Practice Management Personnel
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Updated April 3, 2020 based on interim final SBA rules just released. Originally published March 31, 2020.

Congress added the Paycheck Protection Program (PPP) under the new CARES Act and funded it with $349 billion. This program will be administered by a network of approximately 1,800 banks now participating in the SBA Section 7(a) program.

Below are the details of this unique program, which offers tax-free loan forgiveness if loan proceeds are spent on practice operating expenses.

Availability Available to qualified small businesses (less than 500 employees) of all types (sole proprietors, partnerships, LLCs and corporations) as long as in operation on February 15, 2020.
Loan Amount 2.5 times the average monthly payroll cost (including wages, health insurance, paid time off, retirement plan contributions, state and local payroll taxes, but not federal payroll taxes, up to $100,000 per employee). Self-employment income (Schedule C/LLCs) also qualifies.
Loan Term If not forgiven, repaid over 10 years (now 2); no payments required for the first 6 months.
Interest Rate Up to maximum of 4% (now 1.00%)
Security No personal guarantees, practice liens, or collateral required.
Forgiveness Available Equal to the amount spent on payroll costs, interest, rent, and utility payments for the 8-week period following loan funding. Loan forgiveness is contingent upon having at least 75% of employees back on the payroll by June 30, 2020 that were on payroll February 15, 2020. No penalty if you rehire previously laid off employees by June 30, 2020. Any remaining loan balance not forgiven is repayable over loan term.
Fees No guarantee fees, financing fees, or prepayment fees.
Participating Lenders Go to www.sba.gov to find participating lenders. The 100 most active SBA lenders include TD Bank, Live Oak Bank, Wells Fargo, Bank of America, J.P. Morgan Chase, U.S. Bank, Bank of West, Regions Bank, and First Citizens Bank.


Here are the 7 steps you need to take.
 

  1. Go ahead and contact your practice bank to see if they are SBA approved as a Preferred Lending Partner. If not, go to www.sba.gov to find a lender who is.
     
  2. Contact your lender and request to be put on their email list to be notified when PPP applications will be accepted (starts as early as April 3 now) and what documentation will be required. Rob Shell, Senior Relationship Manager with TD Bank, says that banks are expecting an avalanche of PPP applications, and you need to establish your place at the front of the line now.
     
  3. Immediately begin assembling the following data expected to be required:
    • 2019 Profit & Loss Statement or 2019 Business Tax Returns (if completed)
    • Most recent four quarters of Payroll Tax Returns (Form 941)
    • Verification of the number of employees and total payroll incurred
       
  4. Apply with complete information as soon as your bank begins accepting applications, since SBA lenders with whom we have spoken expect funding to run out quickly.

    As we discussed in our March 18 article, "How To Deal With The Coronavirus Business Slowdown," most practices have furloughed their employees after providing 1-2 weeks of upfront pay, allowing them to file for state unemployment benefits. The CARES Act adds $600 a week to standard unemployment benefits that staff can receive. This will replace most, if not all, of their normal pay, and in some cases, may even provide an increase.

    However, there’s no “one-size-fits-all-practices” strategy here. Some specialties (endodontics and oral surgery) have maintained their staff levels, since many of their procedures qualify as “emergency” under ADA guidelines, and operations may not have been substantially affected. Meanwhile, other practices had sufficient cash reserves and expect to receive PPP funding within 30 days. Accordingly, they have elected not to furlough their staff, in order to minimize disruption and maintain high levels of employee morale. Moreover, practices can offset 50% of the wages paid to staff while their operations are reduced or suspended during the COVID-19 virus, through the Employee Retention Tax Credit discussed in our article “How to Reap Maximum Tax Savings under the CARES Act,” until their PPP loan is funded.
     
  5. Once your practice has received PPP funding, rehire any furloughed staff. You’ll then have 8 weeks to spend the loan amount on payroll costs, interest, rent, and utilities, and the amounts so spent will be eligible for tax-free forgiveness.
     
  6. Reconsider applying for an Economic Injury Disaster Loan (EIDL). Previous SBA guidance indicated that it would be 2-4 weeks before PPP loan applications would be accepted. So, in the interim, we had recommended applying for an EIDL loan directly through the SBA on its website (www.sba.gov).

    The SBA has now issued new guidance, that it will begin accepting PPP loan applications through SBA Preferred Lenders as early as April 3. And SBA officials have advised us that you cannot apply for both EIDL and PPP loans, unless you received EIDL funding prior to March 30.

    Accordingly, since you have to choose between the loan options, you’ll be best served applying for the PPP loan, since it can be forgiven tax-free to the extent you spend the loan proceeds on payroll costs, rent, mortgage interest, and utilities within 8 weeks after you receive the proceeds.

    If PPP funds run out before your loan is approved, or you are otherwise declined a PPP loan, then you should pursue the EIDL loan. This loan must be applied for directly with the SBA through its website and will not be originated by your bank. While this working capital loan must be repaid, the SBA offers favorable terms, with loan amounts up to $2 million, interest at a favorable rate of 3.75%, and a repayment term of 30 years, with the first payment deferred for a full year. If you apply for an EIDL loan, it automatically qualifies the practice for a $10,000 grant that does not need to be repaid. If you receive an EIDL loan, it can later be converted (or rolled) into the PPP loan (e.g., to be eligible for forgiveness). However, the $10,000 grant will be considered part of the total PPP loan amount forgiven.

    While the government is attempting to provide these loans as quickly as possible, the SBA and its Preferred Lenders are overwhelmed. Rules for these programs are changing daily, and there is a significant amount of misinformation now in the marketplace. So, be diligent in preparing and submitting your loan application, but expect the process to be chaotic.
     
  7. Make sure you’ve asked your banker for payment deferrals on all practice loans. Banks are routinely granting payment deferrals of 90 days on practice loans, so be sure to take advantage of this to maintain your working capital.

Updated April 3, 2020 based on interim final SBA rules just released. Originally published March 31, 2020.

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