Small business owners, such as optometrists, will have until June 30 to apply for the Paycheck Protection Program (PPP), a part of the Coronavirus Aid, Relief and Economic Security (CARES) Act which was signed into law March 27. (See https://www.congress.gov/bill/116th-congress/house-bill/748. ) PPP authorizes $349 billion in forgivable loans to small businesses (i.e. those with less than than 500 employees in one location or annual receipts are below a certain SBA level) to be used over eight weeks, so these businesses can continue to pay employees in the midst of the coronavirus pandemic.
What follows are common questions and answers from practice-owners regarding PPP loans, among other aspects of the recent legislation, which were presented at two recent events: a March 31 American Optometric Association (AOA) webinar “COVID-19 Federal Laws and Financial Options for Optometry” and a podcast conducted by IDOC, an optometric alliance, held on April 2. (The question with an * is exclusive to Optometric Management.)
Q: How much of a loan does PPP provide?
A: Up to 2.5 times the O.D.’s monthly payroll expenses, which is calculated using the past 12 months from the loan date. The calculation excludes annual salaries over $100,000. So, if the annual salary an O.D. pays to herself is $150,000, the loan request’s calculation is only going to include that first $100,000. And just a reminder, distributions are not payroll. So, if an O.D.’s average monthly payroll is $100,000, 2.5 times that is $250,000, so that’s the loan amount. That’s two months (minimum) of payroll that is expected to be paid, and then the remaining $50,000 for what the PPP loan designates as non-payroll - Jeff Michaels, O.D., F.A.A.O., AOA Quality Improvement and Registries Committee member.
Q: What is required of the O.D. to ensure PPP loans are forgivable?
A: The funds must be spent onthe business’mortgage interest, lease and utilities (i.e. electricity, gas, water, telephone, internet connection, transportation), interest on any debt obligations incurred before 2/15/20, wages, salaries, vacation time, paid time off, health premiums (employer portion) and sick leave for no more than eight weeks. Additionally, PPP loans donotcoverthe Families First Emergency Sick Leave or Emergency Family and Medical Leave Act (EFMLA), which are also part of the CARES Act. Any money spent after eight weeks will notbe forgiven. The percentage of the loans allowed on non-payroll items is up to 25%. Those who violate this percentage will lose loan forgiveness amounts. - Dr. Michaels.
Q: Does it cost anything to get a PPP loan?
A: No. There are no closing fees, processing fees, etc. The Small Business Association (SBA) pays the banks based on how much the O.D.’s loan is. - Dr. Michaels.
Q: How long does the O.D. have to be in practice to be eligible for a PPP loan?
A: Any business in practice as of Feb. 15th, is eligible. - Dr. Michaels.
Q: If the O.D. already has a credit line, would he still qualify to apply for the loan?
A: Yes. -Dr. Michaels.
Q: Does the O.D. need collateral or personal guarantees to get a PPP loan?
A: While the SBA has historically required small business owners to get credit elsewhere first, it is not required for a PPP loan. - Dr. Michaels.
Q: Does the loan have any recourse?
A: There is no recourse against an individual or business unless the loan is used for purposes not authorized (See “What is required of the O.D. to ensure PPP loans are forgivable?” above.) But, if the loan isn’t paid back, the SBA will report the O.D. to credit agencies. - Dr. Michaels.
*Q: How will an O.D.’s participation in a PPP loan affect her future hope of selling her practice?”
A: The decisions O.D. owners make over the next few weeks will have a direct impact on their ability to sell their practices at any point in the future, whether that is one year or 20 years from now. Certain questions need to be asked: For example, if an O.D. business owner doesn’t go for a PPP loan, will he go bankrupt and have to close forever (thus not selling his business)? If an O.D. owner gets a PPP loan and does not use it according to the rules, is she prepared for the ramification? If the O.D. is not diligent about balancing current payroll before the PPP loan with unemployment and reduced hours, will he have enough money to sustain him for another 90 days of this? — Dr. Michaels.
Q: If the O.D. already applied for an Economic Injury Disaster Advance Loan (EIDL), would that affect the O.D.’s chances of getting a PPP loan?
A: This has been a common point of confusion. There is no language in the CARES Act or subsequent guidance that prevents practices from applying for both. An EIDL loan DOES affect a practice’s PPP loan in several important ways. First, practices will not be forgiven for payroll expenses for which an EIDL loan is used — no double-dipping. Don’t worry, if your practice has already used EIDL funds for payroll, the outstanding EIDL loan will — and must — be rolled into your PPP loan. Finally, if a practice has or eventually does receive a $10k grant advance from your EIDL, that amount will be deducted from the practice’s PPP forgiveness. - Nathan Hayes, IDOC Practice Finance Consultant
Q: How fast can the O.D. get the loan?
A: The SBA has 30 days to issue guidance to banks, but banks can grant a PPP loan based on one’s credit score alone, and some began processing them April 3. That said, banks may ask for other documents, such as monthly payroll reports from the last 12 months and 941 forms. — Dr. Michaels.
Q: Does laying off/hiring employees affect PPP loan forgiveness?
A: Optometrists can lay off staff now and hire them back by June 30 without it affecting loan forgiveness. Butif the O.D. is paying less hourly rates or there are less working hours during the eight-week loan period, that will reduce the amount of loan forgiveness. The SBA is going to look at how many full-time equivalent employees the O.D. has eight weeks after the funding date and compare that to a 2019 timeframe of the O.D.’s choosing. The SBA will then proportionally reduce the O.D.’s forgiveness based on the number of full-time equivalent staff lost. The O.D.’s goal should be to have the same or more full-time equivalent staff at eight weeks compared to that lookback period. — Dr. Michaels.
Q: How can the O.D. prove the loans are forgivable?
A: A PPP loan requires a request for forgiveness, along with certified-as-true documents that verify the required business expenses and the amount of full-time equivalent employees and pay rates. After this is submitted to the loan lender, the lender will decide on forgiveness within 60 days. Optometrists should keep meticulous notes. - Dr. Michaels.
Q: Does the loan have to be paid monthly?
A: Yes and no. There is principal and interest, so the interest on these loans is going to be 1.0%, but there will be a deferral before the first payment is due. The first payment will be due in 6 months. There is a two-year maturity for a PPP loan to be paid in full. That said, the optometrist can work on forgiveness prior to when the first payment is due by doing what has been outlined above. -Dr. Michaels.
Q: Where should I go to apply for a PPP loan?
A: An FDIC-approved bank that has SBA preferredlender status. The reason: The applications these banks send to the SBA will be processed first. So, O.D.s should ask the bank that they have an existing relationship with whether they are a preferred SBA lender. To first identify SBA’s list of lenders by state, visit https://bit.ly/3bQsR3d. -David Cockrell, O.D., AOA Advocacy Chair
Q: Should I apply for a PPP loan now?
A: The O.D. should apply for the PPP now! It doesn’t matter if you are not busy now. The goal of PPP is to put paychecks into your employees hands so the stress of the situation is lessened. If you get approved for a loan and the bank offers a flexible start time, then choose the time frame that is best for your practice. Some banks will offer that flexibility, and some will not. The important thing is to get approval for your loan. If you are not offered flexibility, then start now and pay your staff in full for the next 8 weeks to ensure your chances of loan forgiveness. Remember, if you get a flexible start time, all funds must be started by June 30. - Dr. Michaels.
My advice is to get as much liquidity, which means cash and/or available credit, as possible, since we don’t know how long this will last. Even if you take out a line of credit or a working capital loan in addition to a PPP loan and EIDL loan, many conventional lenders are also offering 12-month deferments on payments, no interest for 12 months, and small (or no) prepayment penalties. So, my advice would be get as much as you can NOW. And if you don’t end up needing the money, you can just give it back. - Mr. Hayes
View the full AOA Webinar “COVID-19 Federal Laws and Financial Options for Optometry."
Find more COVID-19 coverage from Optometric Management here.