Our office is receiving a lot of questions from clients about when to apply for a Paycheck Protection Program Loan. We understand this is the most critical question every practice has at the moment. Unfortunately, we won’t know the correct answer until July, and you need to make a decision now. We want to share our thought process to help you make the best decision for your practice. You have to make this business decision and it is stressful, which is why we suggest reading through the options and worst-case scenarios below. There is no right or wrong answer; just as we explained in last week’s blog, the outcome is based on factors outside your control (when you can reopen and when the program’s money will run out). Since you can’t control those factors, you just need to make a decision that you feel is best and know that all options were reasonable.
- Apply now for a PPP loan, possibly get the money soon, spend it during the next 8 weeks. That’s great and works, but if the origination date is 4/10, by 6/5 the 8 weeks window will have expired and you need to continue to have full payroll by 6/30, even if there isn’t work for employees, in order to obtain loan forgiveness. That works if you are open anyways when the 8 weeks expires. The downsides are that:
- You will be paying people not to work at some point during that 8 weeks
- In addition, it may be possible that with the state and federal unemployment (additional $600 per week on top of state unemployment), your team could make more money on unemployment. So, by you deciding to pay them now, they could start making less money than they were on unemployment.
- Apply now for a PPP loan, have the origination date delayed, if you can. Some banks say they can allow this; however, many are saying they cannot delay funding. Unfortunately, this is simply another factor that is outside your control as there is no consistency. Banks are learning as they go as to what options they can offer. I would certainly get a definitive answer from your bank on this point.
- Wait to apply for a PPP loan, apply when you are about to reopen. This is the ideal situation, but the risk is the funds could run out. There are $349 billion in funds available for this program, but it could run out. No one knows if the funds will last or if they will be replenished. If you wait and the don’t get a PPP loan, the consolation prize is you might be eligible for a credit 50% of wages paid in Q2, up to $5,000 per employee. The details of that are complicated though.
- You get the funds in a week or so, you spend the funds on eligible costs during the 8-week forgiveness period that ends in June, and you need to pay people at the end of June even if you are not open. Your cost is the expense in those weeks after the loan runs out but at least you built some goodwill with your employees, unless they are getting unemployment and it is higher than what you pay them.
- You get funds, keep employees on unemployment, and don’t use the majority of the funds until after the 8 weeks. You end up with a loan that has 1% interest for 2 years to pay wages when you reopen. Not free money, but cheap working capital and, if you can’t reopen for some time, this working capital is probably necessary.
- You wait for the loan and it isn’t available when you need it. You look into taking the federal credit.
None of those scenarios are terrible – they just aren’t as ideal as having 8 weeks of payroll covered. Again, the factors are out of our control, so we don’t have an answer. I know some consultants say wait as the money will be replenished if it runs out. This is fair, but we don’t really know if that will happen. Others say apply now and don’t wait. Also, fair, but you might be paying people to sit at home. The point is no one knows the best answer, but all the options are reasonable as long as you know the risk and rewards of each.
On a different note, if and when you do apply and receive the money, we are currently recommending that you open up a separate checking account to track the use of these funds; this will be important from a loan forgiveness basis.
Finally, we believe that the SBA will come out, shortly, with a statement clarifying that you have the ability to have both an EIDL loan and PPP loan you just can’t use them for the same purpose. This is another reason to have a separate bank account for each of these loans.
Stay Safe and Healthy!