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CDA provides clarification on the Small Business Administration's EIDL and PPP loan

Yesterday, the American Dental Association sent a communication regarding dentists’ eligibility to apply for both an Economic Injury Disaster Loan (EIDL) and a Paycheck Protection Program loan (PPP). The ADA’s communication intended to make sure the language of the Interim Final Rule was completely clear.

CDA is providing additional clarification and has consulted with the ADA and other entities on behalf of our members in order to eliminate some of the confusion many of them are experiencing related to the financing options available during the COVID-19 crisis.

ADA’s grassroots action alert indicated that small businesses must choose between the two loans and that small businesses cannot receive both loans unless a qualified business receives their EIDL funds on or before April 3.

After reviewing the Interim Final Rule and Small Business Administration guidance issued April 2, as well as additional information from lending institutions and accountants, it is CDA’s interpretation that member dentists may apply for both the EIDL and PPP loan with the understanding that small businesses cannot use the funds from both loans to assist with payroll costs.

J. Haden Werhan, CPA/PFS of Thomas Doll, who specializes in wealth management, accounting and tax services for dental practitioners, notes that language included in the CARES Act and the SBA guidance has resulted in some confusion. He states, “The bottom line is that one may not ‘double dip’…if a dentist has an EIDL and has used those funds to pay (forgivable/covered period) payroll costs, they may not then use proceeds from a PPP loan to cover those same (forgivable/covered period) payroll costs. In the event one has used EIDL proceeds to pay (forgivable/covered period) payroll costs, that amount of the EIDL must be “rolled” into the PPP loan.  What does this really mean?  Dentists may have an SBA EIDL and they may have a PPP loan (obtained from a bank), but only a certain, calculated amount of the PPP loan is eligible for forgiveness under the CARES Act.”

Werhan further notes that at least 75% of the PPP loan must be spent on payroll costs (see table below) leaving up to 25% to spend on other covered expenses. The covered period is eight weeks from the funding of the PPP loan.  If the loan recipient exhausts their PPP loan proceeds in six weeks and uses EIDL proceeds to pay the remaining two weeks, or vice versa, they have not double dipped and the entire eight weeks' expenditures are forgiven.  The two weeks of EIDL will roll into the PPP loan.  Or, use all of the PPP proceeds on covered payroll costs and the EIDL on the other covered costs.

Additional considerations:

  • There is a difference between the amount borrowed under a PPP loan and the amount forgiven under a PPP loan. A borrower can borrow more than may be forgiven (see table below).
  • If the recipient has used EIDL proceeds to pay for (forgivable/covered period) payroll costs, that portion of the EIDL must be included in the PPP loan. Also, the recipient received a $10,000 grant from the EIDL, that grant will be subtracted from the eligible expenses of a PPP loan.
  • There are no prepayment penalties for either the EIDL or PPP loans.
  • When applying for a PPP loan, it is important to use a bank one already has a relationship with assuming the bank is an SBA preferred lender or a lender that issues only SBA loans.

Table A

Loan Amount Borrowed Under PPP Loan

Loan Amount Forgiven Under a PPP Loan

The amount of the loan is 2.5 times the average payroll costs (Werhan uses 2019 totals versus prior 12- month totals).

  • Payroll costs include any individual employee and owner/doctor up to $100,000 only (not $100,000 plus medical or other expenses.) Owner doctors include sole proprietors, partners in a partnership or corporation shareholders.
  • For employees under $100,000, payroll costs include all wages paid, employer-paid medical benefits, profit sharing, and state and local taxes, up to $100,000 per employee.

 

Expenses eligible for the forgiveness under a PPP loan (principal and interest) include expenses paid within eight weeks from funding of the loan (Werhan believes this time frame may be adjusted given all the confusion and timing concerns.):

  • Covered expenses: Payroll costs.
  • Noncovered expenses: Social Security, Medicare or federal income tax, or payments to associate dentists who are being paid as independent contractors.

CDA encourages its members to seek individual financial guidance from their accountant or financial advisor to ensure the appropriate advice based on their individual situation. An accountant or financial advisor will help dentists to identify which financing options may best meet their needs and ensure the viability of their dental practice.

CDA will monitor the EIDL and PPP loan regulations and update members accordingly. Additionally, CDA will continue to advocate for relief and serve our members and the profession of dentistry utilizing every opportunity we can. Continue to check cda.org/covid19 for the latest COVID-19 news and resources for dentists.

Additional resources:

CARES Act Loan + Assistance Programs (Thomas Doll)

Paycheck Protection Program Application (Small Business Adminstration) 

Paycheck Protection Program Interim Final Rule (Small Business Administration)

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