The latest Coronavirus relief bill passed on December 27, 2020. As mentioned in our earlier post, one provision changed the treatment of EIDL advances as they relate to PPP forgiveness. Under the old rules, if you received an EIDL advance, it reduced your PPP forgiveness amount. But under the new rules, EIDL advances will not reduce your PPP forgiveness amount.
So, what if you already received PPP forgiveness under the old rules? Your EIDL advance reduced your forgiveness amount. If you otherwise achieved full forgiveness, you essentially were left with a small PPP loan to repay equal to your EIDL advance. “That’s not fair!” you say. After all, those who are just now applying for forgiveness have the opportunity to have their entire loan wiped away. The SBA issued a noticetoday rectifying this discrepancy. They will remit payment to your PPP lender for the amount of your EIDL advance, essentially allowing you the full PPP forgiveness for which you were eligible. In most cases, this will mean 100% forgiveness of your PPP loan. If you already made any PPP loan payments that have now become unnecessary, have no fear. Your lender should refund them to you.
EIDL USE RECAP: You can use the loan for normal operating needs—accounts payable, payment on loans, operating expenses, etc. You cannot use the funds to pay cash dividends or bonuses, or disbursements to owners (this doesn’t include normal paychecks to owners; those are ok). You can’t use it to pay off other debt which basically is an unofficial refinance. You can’t use it for capital improvements that were needed by the business prior to the disaster. So if you needed to finish out another operatory, you can’t do that. If the government requires you to buy an IsoLight for your practice in the COVID-19 aftermath, that would be permitted. If you receive both an EIDL and a PPP loan—utilize the PPP loan during the required 8 week period on the permitted items, primarily payroll, then turn to the EIDL funds until patient fees return.
Q: I received the email for the EIDL to continue the process. Do I really need it?
A: Ask us a couple of years from now! How quickly will your practice recover from this round of Covid-19? Will the virus recur in the fall? Will we have to shelter in place again? Who knows? Remember, EIDL is a low cost loan with no prepayment penalty. Take it now and hold it just in case. There’s a small cost in interest with this decision. What will be the cost to your practice if you don’t have working capital when you need it later? Depletion of your retirement account? Bankruptcy? Those are high costs. Due to the uncertainty and the limited availability of the EIDL money, take it while it’s available.
If you are an Edwards & Associates client PLEASE send us copies of your signed PPP and EIDL loan documents as soon as you receive them. We will need these for preparing your financial statements now and for forgiveness and tax calculation purposes in the near future. Use this SafeSend link to securely submit these documents. Thank you!
EIDL advances are starting to
flow, and not a moment too soon. Two things to note.
First, although the EIDL advance
is a grant and does not have to be repaid, if you receive a PPP loan, it will
reduce the amount of the forgiveness on the PPP side. Basically you can’t
get free money from both sources. But remember—the EIDL advance was
supposed to come through in 3 days (hahaha) and there was a need for immediate
cash regardless of the terms. It wasn’t expected that the PPP and EIDL
advances would materialize so close together. Also remember, PPP is 1%
interest. When the practice picks up, life will be good again and you
will repay that $10K plus a little interest.
Second, we have been focusing on
the EIDL advance portion—the up to $10K amount. But the EIDL
program is an SBA loan product designed to help businesses through
disasters. And if the last few weeks and more to come aren’t a disaster
for your business then we don’t know what is! In addition to the
potential $10K, you will be able, in most cases, to borrow additional funds up
to $2million. Ok…you don’t need $2million. but maybe $50K or $250K or
$500K would be nice. The amount of the loan offered is based on your
expected lost revenue. We’re not recommending you take out unnecessary
debt. But the reality is that we don’t know when this crisis is going to
end, especially for dentists given all the aerosol concerns. Since there
are no prepayment penalties and very reasonable terms for this loan, it might
be prudent to take it just in case. You can turn around and repay it if
you choose. What if your practice is closed through June? Your
bills have not stopped completely. Can you make it another 2 months
without additional working capital?
Terms of the EIDL are quite
good—up to 30 years at 3.75% interest with no prepayment penalties. There
are no real strings attached but there are some prohibited uses. You can
use the loan for normal operating needs—accounts payable, payment on loans,
operating expenses, etc. You cannot use the funds to pay cash dividends
or bonuses, or disbursements to owners (this doesn’t include normal paychecks
to owners; those are ok). You can’t use it to pay off other debt which
basically is an unofficial refinance. You can’t use it for capital
improvements that were needed by the business prior to the disaster. So
if you needed to finish out another operatory, you can’t do that. If the
government requires you to buy an IsoLight for your practice in the COVID-19
aftermath, that would be permitted. If you receive both an EIDL and a PPP
loan—utilize the PPP loan during the 8 week period required on the required
items, primarily payroll, then turn to the EIDL funds until patient fees
If you haven’t received your EIDL grant yet, you aren’t alone. Only a few businesses in a handful of states have received anything. But there is an uptick of activity so maybe things are beginning to move…like honey on a cold day.
News is going around regarding EIDL loans. EIDL loans were slated to be based on lost income and up to $2 million. The news, Facebook and other questionable sources are reporting that instead they appear to be limited to $25K per applicant. This includes the potential $10K advance that is already late according to its 3-day disbursement expectation. The message is clearly portrayed as negative and incites initial fear. Don’t panic when you hear of this. According to the message—posted below—this is just the “initial disbursement” and not necessarily the actual maximum amount. Obtaining a higher loan amount will not be easy because it requires collateral that likely doesn’t exist in your practice; so ultimately a big EIDL loan may not materialize. But the plan isn’t to take on big debt, but just to make it through the crisis. $25K would go a long way toward that goal. Either way, based on the quantity of applicants and the pace at which the SBA is moving, we don’t have expectations of real EIDL relief anytime soon.
Because inquiring minds want to know…to date and the best of our knowledge, no one across the nation has yet received their $10K EIDL loan advance. The recent stimulus included an advance of up to $10K on expected EIDL loan proceeds “within 3 days.” Days have gone by now and the question becomes…within 3 days of what? Some banks are saying the applications first have to be processed and the funds will be issued within 3 days after approval. However, the regs clearly stated you did not have to be approved for the loan to be eligible for the advance portion; so why wait for approval? But we know the banks are having as much or more difficulty keeping up with the frequently changing rules as everyone else is.