Mar 28, 2020

CARES Act and the EIDL Loan Program (Revised 4/14/2020)

Written By: Nate Williams

Emergency EIDL Grants (Section 1110)

The rumors are true. Through an SBA loan, you can be granted up to $10,000.00 if the money is used for staff costs, rent, business debt payments, or other business expenses that you can’t pay because of revenue loss. We give detailed instructions on how to apply for this loan here: https://practicefinancialgroup.com/apply-sba-economic-injury-disaster-loan-eidl/

Here are some important things to glean from this provision of the bill:

  • Eligibility; check, you’re eligible (less than 500 employees)
  • Emergency Grant
    • This is requested as an “advance” which does not have to be repaid
    • Amount of Grant is $1,000 per employee, capped at $10,000
  • Use of funds:
    • Providing sick leave to employees unable to work due to COVID-19 (not applicable if your office is shut down)
    • Maintaining payroll to retain employees during business disruptions or substantial slowdowns (not applicable – you’re not paying your employees)
    • Making rent or mortgage payments (mortgage = loan on the building, practice purchase note or equipment note)
    • Repaying obligations that cannot be met due to revenue loss
  • Repayment – you’re not required to repay up to $10,000.

Is there a “first come first serve” order on this? Yes. The SBA was granted $10,000,000,000 to carry this out. They will dole this out until it is gone.

 

EIDL Loan FAQs

What is the maximum amount I can borrow under the EIDL loan?

The maximum amount allowable for this loan is $2,000,000.

If I qualify for the $10,000 EIDL grant, can I also get the PPP funds when available?

Yes, you will still be able to apply for the PPP Loan, even if you receive the $10,000 grant. In that case, the amount of PPP loan that is eligible for forgiveness will be reduced by the amount you receive as a grant.

If the PPP loan forgiveness is going to be offset by the $10,000 grant I get from EIDL, shouldn’t I just wait to apply for the PPP and not waste my time with the EIDL?

Our recommendation is to apply for the EIDL loan (here); the loan application is short and simple. If you get the grant and the PPP, you will get the same amount of “free money” from the government either way. To us, it doesn’t make sense to say no to the grant now on the presumption that you will get the same amount at a later date.

Should I apply for more than $10,000 since I can potentially refinance my debts at 3.75% over 30 years?

Refinancing existing debt is not an approved usage of EIDL Loan funds. If you have another reason that you might want more than the $10,000 grant, consult your planner. For now, apply for the EIDL Grant regardless. You don’t have to specify an amount on the application.

Can I refinance student loans with the EIDL loan proceeds?

No.

I am still open working reduced hours. Can I apply for this loan/grant?

Yes, this grant is available to any small business affected by the COVID-19 outbreak, even if still open for operation (i.e. every small business in America).

Is collateral required for the EIDL loan?

Only if the loan request is over $25,000. If you are only applying for the $10,000 grant, no collateral is required.

How will the amount of the loan be determined?

According to the SBA, the amount of an EIDL Grant will be “determined by the number of your pre-disaster (i.e., as of January 31, 2020) employees. The Advance will provide $1,000 per employee up to a maximum of $10,000.”  If you are applying for a loan in addition to the grant, specific, written guidance on this has not been published that we’re aware of. However, per a phone conversation with a SBA Rep, a loan officer will be reaching out to applicants sometime in the next 7-10 days; that is the time when you specify the amount you’re applying for.

How can I use the $10,000 EIDL grant once I receive it?

You can use the EIDL grant for the following purposes:

  • Providing sick leave to employees unable to work due to COVID-19 (not applicable if your office is shut down)
  • Maintaining payroll to retain employees during business disruptions or substantial slowdowns (not applicable for most doctors – you’re not paying your employees)
  • Making rent or mortgage payments (mortgage = loan on the building, practice purchase note or equipment note)
  • Repaying business obligations that cannot be met due to revenue loss

Should I set up a separate bank account to track the use of loan proceeds?

We do not recommend you set up a separate bank account to track loan proceeds. Using the financial statements we prepare, plus other documentation, we will be able to account for where the loan proceed money goes without the additional complication of a separate account.

Should we also apply for the EIDL loan for RE entities? Why or why not?

We do not recommend applying for the EIDL Grant for your real estate entities, especially if your practice building is the primary real estate owned by the entity. From an economic perspective, these two entities are essentially the same, making this a risky position to take if the SBA decides to investigate the necessity of each loan (the penalty for a wrongful application is 150% of the original grant amount).

Can I use the proceeds of either the EIDL or PPP loan to pay myself and spouse?

The bigger issue is not whether or not you can use funds, but if the use will qualify as a forgivable expense. You may use the proceeds “to retain employees during business disruptions.” In our understanding, you would not qualify as you are not employees who need to be “retained.” We will update with future guidance as applicable.

Should I list PFG on the form for assistance?

No. We provided guidance, but you should fill out the form yourself.

I have plenty of emergency funds and business cash to weather this crisis.  Should I still apply?

In our opinion, it doesn’t hurt to apply for the “free money” from the government to cover your expenses while you are closed. For now, we recommend you start by applying for the EIDL loan.

I don’t know my EIN. Where can I find it?

You can find it on the top right of the first page of your business tax return: form 1120-S for an S-Corp, and form 1065 for a Partnership.

Do I include Doctor payroll with my employee payroll expenses for COGS?

Include what is shown under “Direct Expenses” on your monthly financial statements, including:

  • Assistant, Hygiene, Front Office, Contract Labor, Employee Benefits and Payroll Taxes
  • Dental Supplies
  • Lab Services
  • Office Supplies
  • Printing, Postage, and Delivery

 

PPP Loan (SBA 7(a) Relief Loans)

For detailed information on this loan program, see our blog posts here:

https://practicefinancialgroup.com/ppp-loan-cares-act-top-bottom/

 

Sincerely,

PFG Advisory Team

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