Define your strategy for PPP, EIDL before funds run out
On the afternoon of April 21, the Senate passed an additional $310 billion in funding to the Payroll Protection Program (PPP) as part of an overall increase to the CARES Act stimulus. Shortly after the Senate vote, Treasury Secretary Mnuchin communicated this would likely be the final round of PPP funding.
The House plans to vote on the additional funding this Thursday and subsequently sign it into law shortly thereafter. Once passed by the House, it is expected the SBA system will reopen the funding of PPP loans late Thursday or early Friday.
There is currently a backlog of applications already in the PPP system ready to apply for funding as soon as funds are released. There is no way to know how long the funding may last; therefore, it is important to understand your borrowing strategy in order to make a decision on how best you should proceed.
In addition to the PPP funding the bill also adds $60 billion to the Economic Injury Disaster Loan (EIDL) program, including $10 billion for EIDL grants.
The additional funding has been approved at the same time as many states are beginning to announce reopen dates for dental practices and small businesses. CWA has continued to recommend that PPP loans should be applied for as close to when you reopen as possible.
Each situation is unique, and there is not a one-size-fits-all answer to utilizing the funding options available. You should make your decision based on your cash flow needs, state reopening guidelines and personal level of risk tolerance.
Applying for this additional funding depends on which of the following three groups you fall in:
Group 1:
You have already applied for and received your PPP loan during the first round of funding. In this case, the additional funding is not important for you. However, the additional funding to the EIDL program may be beneficial for you. If you have not applied for EIDL funds and you need the additional cash flow in the summer or fall, CWA recommends applying for an EIDL. You can apply for a PPP loan and EIDL, however you cannot receive forgiveness on the EIDL grant as well as the PPP loan. Keep in mind that EIDL grants are being limited to $1,000 per employee. Read more about EIDL grants in our blog.
Group 2:
You have not applied for a PPP loan yet and your state is set to reopen in May. If you need the additional cash flow, CWA recommends you immediately apply for a PPP loan during this second (and likely final) round of funding. With a 10-day delay on the receipt of funds, you will likely receive your disbursement in the first week of May. This will provide your practice up to six weeks of payroll to use towards the forgiveness calculation.
Group 3:
You have not applied for a PPP loan and your state is set to open after June 1. If you decide not to apply for a PPP loan, you are eligible for forgiveness on an EIDL grant and the Employee Retention Tax Credit. CWA calculates these two benefits equivalent to 30% to 40% forgiveness on a PPP loan. It is important to estimate how much of the PPP loan you can have forgiven in order to decide. You need to be able to look past the emotion of feeling like you “missed out” on the PPP loan. Please remember that if your cash situation is secure, any portion of the PPP loan not used for qualified expenses is not forgiven and simply a loan. In this case, there is no benefit to you other than a short-term operating capital loan.
Due to the backlog in applications and the set aside of funds for smaller banks, many of the larger banks are no longer accepting applications. CWA recommends that if your bank is closed to new applications, seek out a local bank or credit union to provide your PPP loan. Please reach out to your CWA planner with any questions.
We are still shocked the SBA has not issued further information or guidance on the criteria for forgiveness of PPP loans. There remains many questions surrounding business owners and their level of forgiveness. Once guidance is released CWA will provide further updates and strategy.
We are grateful to be able to serve you during this time and commit to doing our part to keep you informed. For all the latest information, visit our resources page at cainwatters.com/covid-19.
