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

Nate Williams COVID-19 Updates 9 Comments

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

Comments 9

  1. Kurt Aarons

    Should I file for the EIDL grant today and apply for the 7a later? Can I get the $10,000 grant now and the 7a loan later? Thanks.

    1. Post
      Author
      Nate Williams

      Kurt, yes. That is exactly what we recommend. The loan forgiveness with the 7(a) loan will be reduced by the $10k, but take the $!0k now. There are a lot of unanswered questions with the 7(a) loan at this point in time. More to come on that…

  2. David Chen

    Hi Nate,
    I’ve heard sitting in webinars from other accounting/legal firms stating that if you apply for the 10K EIDL loan, they will consider and take out the 10K amount when you apply for the SBA 7(a) loan. So the advice was if you have cash on hand, there’s no need to apply for the 10K. Do you find this to be accurate? So we can’t “double dip” in a sense?

    Thanks,
    Dave

    1. Post
      Author
      Nate Williams

      Dave, unfortunately you can’t “double dip” on the free money. If you get the $10,000 of grant money now, and if you also apply for loan forgiveness on the 7(a) loan, it is true that the loan forgiveness amount will be reduced by the $10k. However, the $10k grant checks are to be sent out within 3 days of approval. We see no downside to getting this money earlier than later, do you? Again, our advice is to apply for the EIDL loan and take the $10k now; deal with the 7(a) loan later.
      -Nate

  3. felicia robinson

    with the 10000 grant loan will it automatically be put into business acct, once application is completed? can 2018 tax be used for “EIDL” my bank does not have info for instructions

    1. Post
      Author
      Nate Williams

      On the application you were asked to put your bank name, routing and account numbers. The SBA said that these $10,000 grants will start going out within 3 days of when people are approved. Although I haven’t heard of anyone getting the $10,000 yet, I would assume they will direct deposit the money in your business checking account, the one you gave on the application.
      -Nate

  4. LIsa J Hunter

    My question is in regards to the 10,000 loan and how it interacts with PPP. I have been approved for the 10,000 and am waiting on PPP grant. Am I correct in assuming that if/when approved for PPP it will be reduced the 10,000 advance. If by chance I am not approved for the PPP, is it true as long as I use 10,000 for payroll and rents that it does not have to be repaid? Thank you

    1. Post
      Author
      Nate Williams

      Great question. You should get the full PPP loan, even though you got the $10k EIDL grant. The amount of the PPP loan that is eligible for forgiveness will be reduced by the amount you received from the EIDL grant. For example, let’s assume that you get $100k for the PPP funds, and after the 8-week period, $80k is eligible for forgiveness. The forgiveness will be reduced by the $10k EIDL grant you received, so you’ll actually get $70k forgiven.
      Make sense?

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