To Our Valued Dental Clients,
It has been a while since I’ve written an update about SBA loans for dentists. I have personally spoken with many of you, as have partners Pam Chamberlain and Don Watson. Since my last communication about a month ago, there has been minor guidance provided by the SBA, a Forgiveness Application, and 26 pages of guidance on forgiveness. It has all come in bits and pieces.
As we talk with dentists, we are hearing that offices are starting to open. I am happy to report that many of our clients are pleasantly surprised at the demand for their services, with many patients asking why they didn’t open sooner. There are still many people who are reluctant to go to the dentist, but hopefully as stories about the safety of the dental office are communicated this reluctance will fade. While this is not the case with all dentists, we are hearing stories of hope and optimism. We are not out of the woods by any means, but on many fronts it looks positive as dentists race out of the starting gate towards reopening.
BILLS TO AMEND THE PAYROLL PROTECTION PROGRAM
On Thursday we had some big news coming out of Washington D.C.
Dozens of small business trade groups (for example, the American Dental Association, the American Institute of Certified Public Accountants, and every group representing the restaurant industry, to name a few) had been writing to and lobbying Congress and the White House that the eight week period given for business owners to spend their money received as forgivable loans through the Paycheck Protection Program (PPP) was not sufficient to help struggling business owners. Many business owners were not, and in many cases are still not, permitted to open their doors (except for emergencies) due to state, county and local orders. These groups told Congress and the White House that by requiring PPP money be spent within eight weeks from the day you received it was not enough time. In some cases workers were reluctant to come back to work out of fear of contracting the COVID-19 virus, or many of them were earning more from unemployment. Business owners need to use PPP funds for payroll when they open, not when they are closed.
Congress heard them.
Yesterday, by a vote of 417-1 the House of Representatives passed the Paycheck Protection Program Flexibility Act (HR 7010). This bill:
- Increases the time business owners have to spend PPP money (the covered period) from 8 weeks to 24 weeks
- Decreases the amount that needs to be spent on payroll costs from 75% of the loan amount to 60% of the loan amount
- ncreases the term of the loan for the amount not forgiven from two years to five years
- Extends the date that you need to have hired back the same number of full-time equivalent employees (FTE’s) and restored their salary or hourly wage to pre-pandemic levels from June 30 to December 31
- Eliminates the reduction in forgiveness for failing to have the same number of FTE’s if you can:
- document that you cannot rehire the people who were working for you on February 15, or
- cannot hire similar qualified workers by December 31, or
- can quantify “an inability to return to the same level of business activity” due to compliance with requirements established or guidance issued by various governing entities.
- Gives you ten months from the end of the covered period to apply for forgiveness (this makes sense since they are giving you until the end of the year to see if you can hire back employees)
PLEASE REMEMBER THAT THIS IS NOT YET LAW. The Senate has its own bill, and the House and Senate will need to come to an agreement. But everything we are reading and hearing indicates that there SHOULD be a deal.
The Senate bill, which we expect will be voted on the week of June 1, provides for:
- Extending the time you can apply for a PPP loan from June 30 to December 31
- Increases the time business owners have to spend PPP money (the covered period) from 8 weeks to 16 weeks
- Allows for Personal Protective Equipment (PPE) or modification of a business facility required by government agencies to provide safety, social distancing or sanitation to be a forgivable expenditure of PPP funds
- Clarifies that borrowers who have maintained payroll for eight weeks do not lose loan forgiveness if they fail to do so after eight weeks
- Makes no change to the requirement that 75% of the loan amount be spent on payroll costs
ADDITIONAL GUIDANCE FROM THE SBA
Late last week, the SBA provided 26 pages of guidance, which we spoke about in our webinar this past Tuesday. In this guidance, much of the information referred to the forgiveness application (which will change if the legislation discussed here is passed), but also it addressed the following:
- You may use PPP money to pay bonuses to your team and actually used the term “hazard pay”. In other words, if you are not at the 75% of payroll costs required for full forgiveness (or a lower percentage that might become law in the coming weeks), a bonus would be allowed to get you over the top.
- You can pay your prior month’s rent that you were unable to pay with PPP funds as long as the rent is paid during the covered period. This applies to utilities as well. For example, if you received your PPP funds on May 10 and you have not paid your April rent, you can now pay your April rent and it will be forgiven even though it is for a time prior to the covered period. It is forgivable because it was paid during the covered period.
For those of you who put everyone back on payroll the day you received the PPP funds (whether your practice was open or not), unfortunately you do not receive any benefit for following the letter and spirit of the law to obtain forgiveness. The American Dental Association, Academy of General Dentistry, and other dental specialty academies or associations has addressed this issue in a letter to the five senators who authored the latest bill, which states in part:
“Primarily, we would support the addition of a tax credit or grant for businesses that received PPP loans early in the process and have made every effort to follow the rules—even without full guidance from the agencies—to achieve full loan forgiveness for their PPP loans.”
We will see if those of you who followed the letter and spirit of the law receive something for your efforts.
If you just received your money in the past week or so or are still waiting for it, or if you chose not to pay your employees until your office opens you are in a better position to be able to use this money for a longer period of time. If there is legislation agreed upon, it is anticipated that you will be able to use the funds to gradually get your team back to where it was pre-pandemic within the new covered period and still receive maximum forgiveness.
Now that we are ten weeks into the closing of dental offices, it is time to assess what is the best use of these funds for your business. In other words, it’s a good idea to assess what your “war chest” looks like between now and the end of the year to determine if you need to keep this money as a lifeline if your workers are not coming back immediately. If you going to be hitting the ground running and are booked solid with pent up demand for dental care, then you will bring your team back quickly, spend the money quickly, and have a better chance at maximum forgiveness. If, on the other hand, you are starting off slowly or opening later, you might need this money to pay the bills and forgiveness may not be as important. For example, a large dental group has roughly $300,000 between their PPP loan, corporate savings, and a line of credit with the bank. They have a high rent, which will use up about 1/3 of this over six months. After talking at length with the doctors, we determined that forgiveness is secondary and we need to make sure they can keep going until demand picks up.
If you have not applied for a PPP loan, there is still over $135 Billion left in the fund so you’ll more than likely obtain a loan if you qualify. You’ll be in a great position to use the money for whatever extended period you’re awarded if the law changes.
If you have received or ultimately do receive an EIDL loan, we are advising that you ultimately take it as it could be a great safety net for when the PPP money is exhausted. Be sure to read your loan document so you know what you are agreeing to when taking this loan.
Regardless of whether or not new legislation changes the PPP rules, the SBA still owes all of us significant guidance on the technical aspects of how they want you to spend the money. It may not come, or if it does it may be too late. We shall see. After two months with the CARES Act, there are still many unanswered questions.
FOR THOSE IN CALIFORNIA
The California Dental Association is making available 25,000 “kits” of PPE (one to each dental office) that it has obtained for CDA members. This was published on their website yesterday. You only pay shipping, and they are available on a “first come, first serve” basis.
We are doing our best to stay on top of this ever-changing situation. Megan Mortimer, Congressional Lobbyist from the ADA, has been extraordinarily helpful in keeping us updated on what is developing on Capitol Hill, and Dan Bywater from Ready Capital has kept us up to date on the loan and banking side of all of this
I talk regularly with the executive director of two of our large local dental societies. Once legislation is passed, we will provide additional webinars to the societies to provide updated information.
In addition, we will continue our weekly webinars provided in conjunction with Eide Bailly. These will move to Fridays beginning June 5.
Finally, if you are a specialist and would like me to give a webinar for your referrals or other group, contact me – I’d be happy to do so.
The bottom line is – we are here for you. In the coming months, you will be filing for forgiveness and we will be here to help you through it. We value our relationship with every one of our clients and care deeply about your success in this very challenging time.
Stay safe and healthy, show your patients and your team compassion, and step up your leadership – which is so important at this time. Remember my mantra: “Failure is not an option.”
PS – Be sure to tune into the “The Art of Dental Finance and Management” podcast for legislative updates as well as an all-star line-up of guests who will give you great advice on the re-opening of your dental office.