How to get money from the CARES Act loan programs

(Disclaimer: I am neither a CPA, a tax consultant, nor a lawyer. This is general advice and guidance and should be treated as such. Please contact a professional trained in SBA loans if you have questions or concerns.)


(Update 4/3/20 2:05 am ET: There is a delay in this program starting as the banks are waiting on guidance from the Treasury/SBA)


(Update 4/3/20 11:54 am ET: Banks will be opening the application any minute now!)


(Update 4/3/20 12:03 am ET: Hearing that Bank of America customers can only apply if they previously have had loans or credit card products from them. This likely is not the case with most banks as you should be able to apply no matter what.)


(Update 4/3/20 12:52 am ET: Smaller banks are pushing back on the 0.5% interest rate as they claim they will not be able to afford to staff up for this program. Talk to your bank about their interest rate.)


(Update 4/7/20 11:51 am ET: The SBA has released guidance towards how this all works. Please do some research on the new guidance and make sure you understand how it affects you. In addition, the EIDL cash grant is now $1000 per employee, up to $10k, as opposed to $10k no matter what. The EIDL cash grant will be deducted from your max PPP allowable forgiveness. So if you plan on taking PPP and getting it forgiven, it is better to not take the EIDL.)


The federal government has passed the CARES Act, which contains significant loan programs for small businesses through the SBA (Small Business Administration). A small business is defined as a business with less than 500 employees. Here is a breakdown of how it works, how to apply, and other resources to read more about it.


What:

PPP (Paycheck Protection Program) vs EIDL (Economic Injury Disaster Loans). We are focusing on the PPP loans here. The EIDL is also useful as it contains a $10k cash grant advance (even without taking any loan), but it is very likely to run out soon (as in by the time this is written). However, feel free to apply here.


PPP (Paycheck Protection Program)

Main topics:
  • Maximum loan amount vs maximum forgiveness amount (e.g. how much of the loan converts to a grant and how)


  • How to apply


  • When to apply (NOW) - (Update 4/3/20: There is a delay in this program starting as the banks are waiting on guidance from the Treasury/SBA)


  • Is this for me (YES)


Who: Is this for me/should I apply?
  • tl;dr: Yes!


  • Yes! This program applies to almost all small businesses, including medical practices, thus, all DPC owners affected by this crisis should be applying for this!


  • As long as you have less than 500 employees and were in business on or before February 15, 2020, then you can apply.


  • LLC/PLLC, Sole proprietorship, S-corp, C-corp, non-profit are all eligible.


  • Even solo DPC practices can apply. You are still 1 employee, thus you fall into the category of small business.


What is this?
  • tl;dr: A loan of maximum 2.5x your business' average monthly payroll over the last 12 months that, if used for payroll, will likely be completely forgiven.


  • It is, as its name suggests, meant to protect paychecks of employees. It does not HAVE to be used only for payroll, but the conditions under which it will be forgiven are tied to using it for payroll.


  • There are many qualifiers, conditions, cases, and interpretations of this program and you should consult a CPA or lawyer if you think you don't fall into the standard use case, but the 99% use case is:


    • 2.5 * average monthly payroll for the 12 months prior to your application date


      • Payroll is defined as salaries, wages, commissions, vacation/sick pay, family/medical leave, retirement contributions, group health premiums, and state/local taxes on payroll. Federal payroll taxes are not included.


      • Example: You apply April 4, 2020. Your total payroll from April 5, 2019 - April 4, 2020 is $240k. Then divide that by 12 ($240,000/12) = average monthly payroll of $20k. Now, 2.5 * $20k = $50k. That means you are eligible for a PPP loan of $50,000.


  • The maximum annual payroll per person that can be included in the loan is $100k. Employees making more than $100k can still be included, however, only the first $100k can be considered.


  • You, the owner of the DPC practice, are also considered an employee and can include your own wages in the loan application.


  • This loan has a 2 year term, with 6 months of deferred payment with a 0.5% interest rate.


Where do I get this loan?
  • tl;dr: Go to your business bank's website and apply there.


  • This loan will be administered by the financial institutions (i.e. the banks). It is highly advised that you do this through your current business bank. For instance, if you bank with Chase Bank for your practice, you should apply through them. Banks are going to prioritize their current customers.


  • The bank must be an SBA eligible lender. However, they are allowing more banks to be eligible to lend for this program. Check with your bank to find out if they are eligible. Most big banks will already be SBA lenders.


  • Here is a sample application from the SBA.


When do I apply for this?
  • tl;dr: Now!!


  • The application opens on April 3, 2020. That means you should apply now!


  • The last day to apply is June 30, 2020. However, there is a set amount of money ($349 billion) to be given through this program and it is first-come-first-serve. That means it is very likely to run out before June 30th.


Why should I apply for this?
  • tl;dr: This is very likely to be converted to a grant if used correctly and taken in good faith. Take it. Use it. Keep you and your employees happy.


  • If you have not thought about applying for a loan, why would you want to apply for this? One word: forgiveness!


  • This program is set up such that 100% of the loan (yes, the ENTIRE loan principal plus interest) can be forgiven (converted to a grant) as long as you meet the requirements for acceptance and usage of the loan and show documentation.


PPP Loan Forgiveness

How does the forgiveness work?
  • Technically, the SBA will release the guidance for how the forgiveness will work on April 26, 2020. However, the general terms are understood already.


  • If:


    • 75% of the loan is used for payroll and 25% is used for operating expenses in the 8 weeks following your receipt of the loan


    • AND


    • Your average weekly payroll and number of employees during these 8 weeks is greater than or equal to your average from the last 12 months


    • THEN


    • 100% of your loan will likely be forgiven.


  • There are many conditions to determine headcount and payroll comparisons. Check out this resource from MicroConf for a great detailed breakdown of PPP.


    • In general:


      • If you cut headcount the forgiveness will be reduced by the difference in average headcount. The comparison is with headcount between 2/15/19 and 6/30/19 OR 1/1/2020 and 2/29/2020 (at your choosing).


      • If you cut salaries > 25%, the forgiveness will be reduced by the amount in excess of the 25%.


  • The forgiveness amount will be determined by the lending bank you chose. Be sure to consult your bank/CPA for any specific questions! The goal of this program is to send quick and easy relief. It is unlikely that the government and banks will make it difficult to have your loan forgiven as long as you document, keep the same number of employees and wages, and follow the 75/25 use rules.



This is a huge bill and is very complex. Our coverage is meant to be a quick overview to encourage DPC owners to apply now. For more detailed coverage, here are some great resources:


PPP & EIDL Summaries (in order of usefulness):
CARES Act Summaries:
Webinars:
How CARES Act Affects DPC (spoiler: it doesn't):



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