The long-awaited loan forgiveness details around the Paycheck Protection Program are finally available from the SBA. Definitions and application can be found HERE.
Be sure to review this carefully with your accountant and/or lender before submitting to insure everything is captured correctly.
Other useful links about loan forgiveness
If you’re one of the lucky ones who managed to apply for and receive funding in this first round of CARES Act benefits, congratulations! The next step? Maximizing your loan forgiveness potential, because as you may already be aware, up to 100% of this loan’s total value may be forgivable.
While guidance on what will qualify you for loan forgiveness has shifted almost daily since the CARES Act was signed, we believe there are some consistent and key guidelines that will help you maximize this potential for forgiveness under the PPP. The information below should help you be prepared, but you’ll want to keep in mind that the SBA, US Treasury, IRS, or your lender may change what documentation is needed or how the loan forgiveness is calculated.
Our first recommendation is to check with your lender and make sure you’re doing your best to meet the specifications below—but with the understanding that as guidance is clarified from these various government agencies, at least some part of your PPP loan will not qualify for forgiveness and will remain under the 1% over two years loan terms.
According to the SBA, the 8-week period to measure forgiveness potential for your PPP funds starts the day you receive the funds in your account. While as we’ve mentioned the guidance may change, the following is what you need to do today to help maximize the PPP loan forgiveness amount.
First, you may need to undo any cost management adjustments you previously implemented so you are able to meet the following criteria:
Note: these are the published requirements for forgiveness that are known as of April 21, 2020. These may change as new guidance changes. If you find your practice is any percentage below these requirements at the end of the 8-week period, the amount of loan forgiveness will be lowered by the same percentage. Try your best to meet these requirements but understand that if they change or you fall somewhat short, all is not lost. This just means that a portion of your PPP loan will not be forgiven and will fall under the “1% interest for 2 years” terms.
Since the loan forgiveness guidelines may change, it is recommend that you do your best to have detailed documentation and tracking of how you spend the PPP funds, as well as details for your payroll by staff member for the 8 weeks under the PPP loan period. You will also want to ask your lender about any documentation you should keep so that it is available later to help them with reporting for the forgiveness review.
And finally, some helpful links for further reading:
That was fast: as of April 16th, the initial $349 billion in funds for the Paycheck Protection Program (PPP) have either already been disbursed or are earmarked to fund approved or pending approved loans. Whether your practice will receive PPP funding is going to depend on where in the loan application process you are.
There may also be additional programs created for small business financial assistance from the Federal Reserve or other institutions—but again, this is yet to be determined. And a word of caution: as in any time of crisis, you should watch for scams and fraudulent claims and rely only on trusted sources such as official government websites or information from your trusted lender.
Regardless of your application status, there are other steps you can take right now to help your practice weather this event. After the safety and well-being of your team, your clients, and your patients, your priority is to support the fiscal viability of your practice. Things will be financially tight, difficult decisions will need to be made, and there will still be uncertainty—but you can use a few basic tools to help you get through long-term. The key is to know two essential numbers: your recent daily average revenue and your estimated daily average breakeven for current cost levels. You’ll also want to track the major expense centers and revenue levels that may cause those two numbers to change.
Daily Average Revenue (DAR): You can calculate the DAR number by leveraging the daily stats tab on your iVET360 Pulse dashboard. If you don’t have a dashboard yet, we invite you to take advantage of our free 3-month offer to use this tool to help track your practice financials. You will want to take the revenue total for the practice for the last 7-14 operational days and divide that revenue total by the number of operational days. Example: $50,000 in revenue over the last 14 days equals a DAR of $3,571.
Daily Average Breakeven: There are many ways to calculate this, but if you already have this number figured out, great—use that. If you have a way you like better in calculating this number, use that instead.
If you don’t already have that number, we recommend the following steps for simplicity and speed—but do keep in mind that this will not be an exact figure. However, it can provide you with a general idea of what you need to be producing in revenue to maintain your existing cost levels.
Step 1: Take your 2019 calendar year expense total, this should include any expense the practice had in the year on the P&L statement such as cost of goods, labor, benefits, employer payroll taxes, rent, repairs, utilities, office supplies, professional dues, professional services fees (accountant, lawyer, consultant), merchant services fees, collection fees, interest, and non-operational or other expenses. This should be the total of your practice’s expenses on the P&L statement for all of 2019.
Step 2: Estimate the cost savings total you have or are about to implement and calculate the total savings for them for 12 months. This can include staff cost reductions, order level cost savings, rent deferments, or any other cost savings you have put into place recently to adapt to the changing economic landscape.
Step 3: Estimate any expenses you have already added above 2019 in 2020. These can be things like new monthly loan payments, higher rent, staff raises, or anything that is an increased cost your practice has taken on in your day to day expenses that was not in 2019.
Step 4: Take the total expenses from 2019 minus the total of the estimated cost savings you are expecting annualized for 12 months, and add any cost increases you have already taken on in 2020 over 2019. This will be the annual break even estimate.
Step 5: Take the annual breakeven estimate and divide it by the total number of operational days in the year for your practice. This will give you your daily breakeven estimate.
Operational days estimates:
· Open 7-days a week: 366 days (leap year) minus your observed holidays.
· Open Mon-Sat full days: 314 days minus your observed holidays.
· Open Mon-Fri and ½ day Sat: 288 days minus your observed holidays.
· Open Mon-Fri full days: 262 days minus your observed holidays.
Example: $1.5 Million in total 2019 costs on the P&L – $200,000 in estimated annual costs savings (~$16,700/mo.) + $15,000 in estimated new costs in 2020 = $1,315,000 in estimated annual costs. $1,315,000 /288 annualized operational days = $4,465 daily average break even.
Once you have calculated these two numbers you will want to understand if your breakeven cost estimate is above or below your recent DAR. If it is above, you will need to consider adjusting your cost levels to help the practice financially weather this event longer.
If breakeven costs are below the DAR, you can focus on continuing to track these two numbers versus each other. If you implement additional cost management measures you will want to redo the breakeven calculation with your additional cost adjustment estimates added in. Repeat this analysis as revenue average or cost adjustments are made.
To help alert you on where cost management measures may be needed, we also recommend focusing on tracking your two primary costs centers in the practice that can be most immediately impacted. Those two areas are cost of goods orders and labor expenses. We’ve made our tracking tools available for free to help you keep a pulse on these two areas to better understand if one or both need attention to improve cost results, and stay at or under your breakeven avg target.
Whether you have assistance funds to help the practice through this unprecedented event or not, focusing on your controllable costs and having a target number to measure against on a daily basis can give you the information and data-driven evidence you need to keep your practice financially healthy.
The maximum amount of the loan you are able to request is the lesser of:
It is not known what lenders will specifically require for these loans however, having the following reports/documents prepared and available should help:
How to apply for Loan Forgiveness
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed March 27th, 2020. Details are still emerging but what we do know is that availability for small business relief will come through two main loan programs administered by the Small Business Administration (SBA): the Paycheck Protection Program and the Economic Injury Disaster Loan.
Qualifying businesses may only take advantage of one of these disaster relief programs, but not both.
The Paycheck Protection Program will distribute $350 billion to small businesses (under 500 employees) and is designed to offer support from February 15 to June 30, 2020, for monthly qualified expenses including payroll (W2 and independent contractor employees), healthcare premiums, rent, mortgage payments, utilities, and interest on current loans. Payroll figures used to determine eligibility amount will be the monthly average payroll from 2019. Employees earning in excess of $100,000 during the covered period (Feb 15-June 30, 2020) would not be included in the loan amount. The maximum amount of the loan is set at $10 million.
If used appropriately, 8 weeks of expenses covered by the loan after the loan origination date can be forgiven and considered a grant. The amount forgiven can be reduced if employees were laid off or wages reduced. You can rehire employees to gain full forgiveness. The amount not forgiven will have a maximum interest rate of 1%, amortized over 10 years.
To qualify for this loan, you will need to prove that you were operational as of February 15, 2020. This loan program waives the credit elsewhere test, cash flow assessment, personal guarantees, and required collateral. Additional qualifications include a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19, and that you will use the funds to retain workers and maintain payroll, lease, and utility payments. There are no borrower or lender fees to use this program.
The best way to apply is through a local community bank. If you already have a relationship with an SBA lender partner now would be the time to reach out and find out how they are handling applications and to be put on their interest list.
If you do not have a community bank relationship, reaching out to an SBA lender partner bank would be the best strategy. Many are establishing a list of interested parties who will be contacted when details are released. This legislation also allows for more banks to be SBA-approved lenders, increasing the availability of loans.
EIDL will distribute $10 billion to small businesses (under 500 employees) and is designed for those businesses that need more assistance than the PPP. This loan program is typically used in areas that have a disaster and need funding for the business to stay afloat during the rebuilding period. EIDL will be greatly expanded to address small business needs from COVID-19.
Personal guarantees are not required on loans of less than $200,000. During this emergency EIDL period (until December 31, 2020) the SBA will only look at an applicant’s credit score to approve and offer this loan program. If you are eligible to apply for an EIDL, you will need to complete an EIDL application and certify under penalty of perjury that the funds are needed in response to business disruptions from COVID-19. Once the application and certification are complete, you will be distributed $10,000 within 3 business days while the application is under review.
If it is determined that you do not qualify for an EIDL you will keep the $10,000 without the requirement to pay it back. Advance payments may be used for providing paid sick leave to employees, maintaining payroll, meeting increased costs to obtain materials, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses.
If you apply to both the PPP and EIDL programs, you can only take funds from one. If you apply for an EIDL first, an advance payment will be considered when determining loan forgiveness if the applicant transfers into a loan made under the SBA’s Paycheck Protection Program.
The EIDL rate is capped at 4% and repayment terms are 30 years. This loan program will be administered by the SBA directly on their website; however, you will need to wait until the legislation is signed into law before you can apply. As of right now, you cannot yet apply online.
If you have an existing SBA loan prior to the COVID-19 crisis, it is recommended that you speak with your SBA representative about these newly available relief loans. Please note: the CARES Act is at the federal level and participation in the CARES Act does not disqualify you from state-level support, so it is recommended you explore both options.
Access to the full text of the CARES Act can be found below, and we will be posting more updates as they become available.
PSIvet members can work with CreditBench to help process Paycheck Protection Program application. Please find out more details here.
In times of uncertainty the importance of strengthening your financial footing becomes a priority so you can be prepared for a significant downturn should it happen. The idea is to focus on those things you can control versus focusing on things that are not as controllable.
For example, an increase in fees you’ve been dragging your feet on or shopping your merchant services for better rates become even more important actions if margins become tighter.
On the costs reduction side of things, COGs management is always a good place to tighten your financial position. Make sure your purchasing manager is utilizing a purchasing budget and looking ahead on the schedule to ensure you are attempting to buy based on the revenue being generated and that the schedule ahead suggest will come in; you should be running as lean as possible.
For payroll, make sure you are staffing based on the DVM levels, what’s ahead on your appointment books, and running as efficiently as you can.
On the revenue side, it’s vital to see that the practice is focused on client communication to stem fear and attempt to keep revenue flowing through the practice, while ensuring that your staff and clients are as safe as possible. Most importantly, make sure diagnostics are being maintained and that your primary focus remains on the high quality of care.
As a part of the government’s emergency response to COVID-19, the Small Business Administration (SBA) is making available low-interest economic injury disaster loans. You qualify if your state has declared an emergency as a result of COVID-19, you find your practice is being significantly impacted by the COVID-19 disaster, and you do not have access to a line of credit or traditional bank loan. If you meet these criteria you may want to consider reaching out to your state SBA office to review your qualifications for an SBA emergency loan.
You can find more information on the SBA website at this link.