The COVID-19 Stimulus Package: Protecting Your Practice
By Mary Hollis Stuck April 07, 2020
On March 25, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed, including a $349 billion loan program for small businesses, through the Small Business Association. This stimulus package introduced a lot of complex information in a very short amount of time. While every buying group, lab, or practice management company you’ve ever given your email address to is likely sending daily updates, it’s become information overload. Allow this to act as your guide to what options are available to you.
Paycheck Protection Program (PPP) - This program is already in place, after beginning to accept applications on April 2, 2020. Loans are available through June 30, 2020, and may be up to $10 million. Here’s what you need to know:
- Applicants must be in operation on 02/15/2020. This includes small businesses, sole proprietorships, independent contractors, and certain self employed individuals. Businesses may have no more than 500 employees.
- The loan is calculated by taking a monthly average of your payroll expenses and multiplying it by 250 percent.
- Loan amounts may cover expenses including:
- Payroll, including commission and bonuses.
- Medical insurance premiums, including maternity leave and sick leave.
- Contributions to the company retirement plan.
- Interest charged on debt that was incurred before coverage from the loan.
- Rent and utilities.
- Loans have a two year term at 1% fixed interest rate. There is no fee for prepayment. No personal guarantee or collateral is required. Any amount spent on the covered expenses listed above will be FORGIVEN.
- Businesses must maintain their staff during the term of the loan.
- You must provide documentation of the above covered expenses to your lender in order for them to be forgiven.
- Any amount that is used to pay for anything not deemed a “covered expense” must be paid back. For these non-forgiven amounts:
- Max term of the loan is ten years, with a maximum interest of four percent.
- Zero loan fees and zero prepay fees.
Example of PPP, given with even numbers for simplification:
- Borrower has a monthly payroll average of $100,000 in the last year, and applies at a participating bank. Borrower attests that COVID-19 has impacted it’s business, and submits documentation. The borrower is given a loan of $250,000. They incur expenses totalling to $230,000 over the next eight weeks, and submits documentation of qualified expenses to the lender. Those expenses total to $200,000 of qualified expenses. After 90 days, $200,000 of the $250,000 loan is forgiven. The borrower is left owing $50,000 to the bank. The new loan amount is due over the next two years, with 0.5% interest, no loan fees, and no prepay fees.
Small Business Debt Relief - The Small Business Association, or SBA, provides relief for loans not covered under the package. This includes 7(a) loans, 504 loans, and microloans.
- Borrowers may apply for debt relief through this program AND apply for a PPP loan. One may not apply this relief to their PPP loan.
- This relief can also be used for new borrowers, who apply for loans within six months of March 25, 2020.
- 7(a) loans may be up to $5 million. Types and repayment may vary, from five to twenty five years. These loans could have fees (up to 4%) and prepay penalties associated with them.
- 504 Loans are up to $5.5 million. Types may vary, but they generally are long-term, with fixed rate financing. These loans may be the best option for real estate and expensive exam room or testing equipment. Down payments are generally required.
- Microloans are a smaller loan, up to $50,000. Their maximum term is six years, with fixed interest rates that may vary based on credit and collateral.
Emergency Economic Injury Grants - An emergency advance of up to $10,000 to small businesses affected by COVID-19. This advance may be given to those who have applied for an Economic Injury Disaster Loan (EIDL).
- This advance does not need to be repaid, and may be used to pay any expenses your business incurs due to COVID-19, including payroll, sick leave, debts, rent, etc.
- EIDLs are low interest loans of up to $2 million, used to pay off expenses that could have been paid under normal business conditions, had the disaster not occured.
- Anyone eligible for an EIDL, who has been in operation since January 30, 2020.
- Those who apply for EIDLs and receive the Grant may still apply tof a PPP loan. However, if you are given an advance by the Grant, it will be deducted from the amount forgiven in the PPP.
There are many options available to small businesses or sole proprietors during this time. Below is a list of reputable resources to utilize during this time. However, be sure to check any state departments and the SBA for regulations and options in your area. It is important to remain connected with any accountants, lawyers, or financiers you may be in business with during this time.
Small Business Association - Guidance and options for COVID-19 assistance. https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resource
Professional Eyecare Associates of America - Information sheets and application forms for PPP https://www.pecaa.com/optometry-coronavirus-resources/
Vision Monday - provides more details on how the optometric world is handling this pandemic, from optometrists to manufacturers.