Be ready to apply for SBA loan

A $484 billion coronavirus relief bill passed Congress April 23, and will provide additional funds to the Paycheck Protection Program and Economic Injury Disaster Loans as well as the Economic Injury Disaster loan advances. For those who have already applied and are awaiting an approval response, please continue to keep an eye out for a message from your lender. If you have not applied, now is the time to get yourself organized and ready to apply, as we expect that this next wave of funding for these loans will soon be depleted.  

Dental Practice Success logoThe ADA Division of Government and Public Affairs, along with other dental advocates, have been working around the clock to bring you helpful resources. This article summarizes the two Small Business Administration loans available to dental practices and also a handful of resources created through collective ADA efforts in combination with industry professionals.  

At the center of the $2 trillion COVID-19 government response, is the Coronavirus Aid, Relief, and Economic Security Act — known as the CARES Act. This law includes critical emergency funding for small businesses that is established through the Economic Injury Disaster Loan under section 7(b) of the Small Business Administration, and the Paycheck Protection Loan under section 7(a). As owners of qualifying small businesses, most dental practice owners have focused on these loans as vital funding sources to survive various state-enacted quarantine periods, and just as importantly, to ramp their practices back up once these quarantines are lifted.

Contact your financial advisors, including your CPA

Whether you’ve already applied for one of these loans or whether you are still weighing options, contact your CPA now. They are best positioned to recommend funding options for your practice.

Economic Injury Disaster Loan (EIDL) – Section 7(b) of SBA. The EIDL loan is offered directly by the SBA and requires completion of an online application available on the SBA website. Loan proceeds are available to pay for expenses that could have been met had the COVID-19 impact not occurred, including payroll and benefit costs, as well as operating expenses such as rent, utilities, etc. The SBA will determine the qualified loan amount based on credit scores of the applicant and total collections and operating expenses of the practice. While availability, terms and conditions of these loans may change, the following is a summary as of the date of this article:

• Up to a $10,000 emergency grant per applicant (regardless of whether you are approved or not) that will not have to be repaid. Applicants must check a box for this grant near the end of the application. This grant is limited to $10 billion, and is available on a  first come, first-served basis. The amount of grant money you receive will be $1,000 per employee, which is capped at $10,000.
• For loans up to $200,000, no personal guarantees will be required.
• Terms: 3.75%, up to 30-year repayment, 12 months no payments with interest accruing during this time.

The online application is streamlined and designed to be easy to complete within an estimated 1-2 hours. Have the following information ready when starting. If you are uncertain, contact your CPA prior to completing the application.

• Gross revenue for past 12 months prior to impact.
Cost of goods sold (COGS) for past 12 months prior to impact. Taken from your practice income statement, just under the revenue section at the top. COGS is generally made up of materials and labor.
Organization type for practice. Examples include limited liability companies, S corporations, sole proprietorships, partnerships and limited liability partnerships.
Business ownership. How is ownership of your practice structured? (If there are multiple owners, ownership percentages and personal information on each owner are needed; if it is a parent company, details on that parent entity are needed.)
Business start date. The date the practice organization was established.
Number of employees as of Jan. 31, 2020.
Business bank account information. The routing number and account number.

Paycheck Protection Loan – Section 7(a) of SBA. Currently, the Paycheck Protection Program has been funded with $659 billion. While the EIDL loan is offered only through the SBA directly, the Paycheck Protection Program loan is only available through SBA bank approved lenders.

You will likely find it easiest to work with your existing bank, assuming they are offering the loan. Most banks are requiring applicants to have an established deposit relationship with them in order to move forward with a loan request. However, if you have difficulty working with your current lender for any reason, please explore other lenders in your area that may be able to provide you with better service.

Where the EIDL loan application is streamlined and requires relatively little initial information, the Paycheck Protection Program requires more extensive personal and practice information, including financial statements. Each bank is underwriting these loans based upon their own policy requirements. As a result, the amount of information banks require from applicants varies. Following is a summary of the Paycheck Protection Program as of the date of this article:

• Loan amounts are determined by calculating 2.5x average monthly payroll costs (wages, health insurance, paid time off, retirement benefits and state or local payroll taxes assessed on compensation of employees) not to include federal payroll taxes. Employee/owner compensation is limited to $100,000. Loans are capped at $10 million per applicant.
• Terms: 1% interest rate, up to 2 years repayment, 6 months no payments with interest accruing during this time.
• No more than 25% may be used for nonpayroll expenses (such as rent, mortgage, utilities, etc.). The remaining 75% must be used for payroll costs such as salaries, health care benefits, retirement plans, etc.
• Independent contractor employees (1099) are eligible for their own Paycheck Protection Loans, and therefore their salary cannot be included in any calculation performed for loan forgiveness.

The critical feature of the Paycheck Protection Program is the possibility for loan forgiveness. Based upon the following requirements, all or a portion of your loan may be forgiven.
• The amount forgiven will be based upon the amount of your loan proceeds used to fund payroll and operating costs in the 8-week period which begins the day that the loan proceeds are deposited to your account.
• Loan forgiveness is contingent upon having 75% of your payroll (based upon the number as of Feb. 15, 2020) and the number of employees back on payroll by June 30, 2020.

Other Considerations for the EIDL and Paycheck Protection Program. Practice owners can apply for and receive both the EIDL and Paycheck Protection Program loans. However, as you may expect, there are stipulations that are important to understand.
• If you use the EIDL loan to fund payroll, you must refinance the EIDL loan into the Paycheck Protection Loan.
• If you do not use the EIDL loan to fund payroll, then you have the option to refinance the EIDL loan into the Paycheck Protection Program. You may want to consider using an EIDL loan to fund costs other than payroll as a result.
• Any EIDL grant you receive will be deducted from the amount of loan forgiveness you receive through the Paycheck Protection Program.

Again, your CPA or other financial expert should be your critical advisor in determining how best to use these loans if at all, separately, or together. There are alternatives to these two SBA loans that are covered by the CARES Act, including critical tax credits that may be more beneficial for your practice to consider. Your CPA can best evaluate those alternatives.

Resources to explore. Staying educated is one of the best strategies to protect yourself, and your practice from the economic windfalls of COVID-19.
• Talk with colleagues. Share webinars and articles that you have found helpful. Information continues to come out daily creating a very fluid environment. While comparing and exploring with colleagues, always be sure to bring ideas back to your CPA to ensure a factual understanding.
• As a member of the American Dental Association, leverage the support and materials available to you on COVID-19. There is a library of content for you to explore ranging from clinical topics to financial concerns, including the latest SBA webinar and the COVID-19 Practice Resources page.
• In addition to your CPA, use other key advisors as resources including your attorney, banker, investment advisor and insurance provider.

There is no question, COVID-19 is a game changer both now, and likely for the future. Utilizing your full arsenal of available resources to stay educated is your best offense.
Photo of Kirk Dewart
Kirk Dewart

Kirk Dewart is commercial banker who has assisted small- and mid-sized health care practices, including dental practices, for more than 20 years. During his tenure, Kirk has worked closely with the American Dental Association, and several state and regional dental organizations. Currently, he is consulting for the ADA assisting on the COVID-19 response.