How to Best Utilize Your PPP Loan

by The MDTAXES Network | Apr 21, 2020 | COVID-19

Congratulations if you received either your PPP 7(a) loan or notification from your lender that you will receive those funds soon. Now you need to figure out how to make the best use of this forgivable loan.

Please remember that the primary purpose of the PPP loan is to provide money to small businesses to retain their staffs. Pay out 100% of the amount of the loan over 8 weeks with at least 75% being spent on payroll costs and the rest for certain facility costs and the full amount of the loan will be forgiven. Even if you don’t pay out the full 75% for payroll costs you should still qualify for a portion of the loan to be forgiven.

The challenge for many small medical and dental practices is that most practices shut down and immediately furloughed their staff and the owners mid-March upon being told to stop treating patients. How should the PPP funds best be utilized when your staff is not currently employed at your office and you probably won?t reopen your practice until mid-May or later?

Still Employing Your Staff?

Your decision is easy if you continue to maintain your full staff even if your office is closed or working at a reduced schedule. You will use the PPP funds to pay your staff, rent and utilities over the next 8 weeks, at which time the loan should be forgiven. The government will, therefore, subsidize the staff and facility costs of your practice over the next two months. Make sure that your staff count and payroll costs don?t dip by 25% during this period of time.

No PPP For You

If you didn?t apply for the PPP or weren?t approved and don?t plan to apply again later, then please make sure to contact your payroll provider. They will help you take full advantage of the $5k per Retained Employee tax credit by having you not remit your federal payroll tax deposit each pay period. Doing so will help you recoup the full tax credit very quickly. You also have the option of holding onto the 6.2% Employer Social Security match and repaying those deferred taxes ratably over the next two years.

PPP Basics

Below are the basics of the PPP loan. (The PPP guidelines are still very fluid. The info below is based on our understanding of the rules as they currently apply. If there are any errors, please let us know ASAP.)

What if you do NOT rehire your staff?

1. Every week your state will continue to pay your staff their regular state unemployment benefit plus an extra $600 from the federal government.
2. The government will also pay your unemployment benefit of your state’s benefit plus $600 from the federal government per week.
3. The full amount of PPP funds remains available for when you reopen your practice but won?t be forgiven and, instead, will be treated as a loan to be repaid over 24 months at 1% interest.

What if you rehire your staff very soon?

1. You will use the PPP funds to pay your staff?s payroll costs.
2. You will also use the PPP funds to pay yourself up to $1,923 per week ($100,000 max divided by 52 weeks).
3. The PPP funds can be used to pay your rent and utilities, including phone and internet. (On the contrary, unemployment will not pay your facility costs under any circumstances.)
4. As long as you spend the full amount of the PPP money over 8 weeks, with at least 75% for staff payroll costs and the rest on rent and utilities, the full loan will be forgiven. (Partial forgiveness looks to also be allowed based on staff counts and salaries paid during the 8 weeks following when you get the loan.)
5. The PPP funds could be completely spent by the end of 8 weeks, no matter when you reopen.
6. It appears the forgiven loan won?t be taxable to you as Cancellation of Debt which might give you an extra financial boost by letting you claim these expenses without picking up any income.

What should you do?

Which path you take depends on how quickly you think you?ll be able to reopen your practice. The sooner you can reopen, the more you want to rehire your staff within the next week or so and begin paying everyone once again. Practices paying high rent might also want to rehire their staff soon as a way for the government to subsidize their facility costs over the next two months through the PPP.

Let?s say you reopen on 5/18. The PPP money would pay you and your staff for two weeks while being idle, and then would continue to pay your practice salaries for the first six weeks you are open. The loan would also pay your next two months? rent and utilities. That should hopefully give you time to build up your practice A/R and cash flow again. At the end of 8 weeks, the PPP would be fully forgiven.

What if you can?t reopen until 6/15? If you hire back your staff next week, you would use the PPP to pay their salaries, your salary (up to $1,923 per week) and your rent and utilities. When you open on 6/15, there would be 25% or less of the PPP funds remaining to help you get your office up and running again. Would you have been better off keeping your staff and yourself on unemployment for those 6 weeks and then have the full amount of the PPP loan available to jumpstart your practice when you finally reopen even though that loan will no longer be forgiven? Remember, unemployment benefits paid by the government are comparable to salaries paid with a loan forgiven by the SBA. Both are ?non-loan? money.

The Wildcard

Many national and state medical and dental societies are pushing Congress to allow practice owners to delay the 8-week period to determine loan forgiveness. If this option passes, then practice owners who don?t immediately rehire their staff and instead save the funds to use upon reopening their practices could fare best. No one is sure of the likelihood of something like that being enacted, however.