Getting Cash For Your Small Business Through The CARES Act
[Disclaimer] This article was written to the best of our knowledge with the latest news released from the Federal government. There are many moving parts to both of these programs, and as the days and weeks pass, there may be more clarification to some parts that are vague or confusing. Please be mindful, that I have tried to gather as much information that I can, and may miss some details worth noting.
Many optometric offices have faced a COVID-19 related closure that has forced both owners and employees to seek unemployment benefits from the state. Business owners are also faced with the financial challenges to keep their businesses viable while continuing to pay for fixed expenses. On March 27, 2020, President Trump signed the $2 trillion stimulus package which also includes the Coronavirus Aid, Relief and Economic Security Act — or CARES Act. The purpose of the CARES Act is to alleviate this financial burden by providing loans that are 100% forgivable as long as they are used for eligible business needs.
This guide provides information about the major programs that are available from the Small Business Administration (SBA) to address these needs.
There are 3 main programs under the CARES Act:
- Paycheck Protection Program - a “forgivable” loan program to cover the cost of retaining employees at full capacity and wages as well as cover eligible business expenses.
- Emergency Economic Injury Grant - provides an emergency cash advance of up to $10,000, without any obligation to pay back.
- The Small Business Debt Relief Program - provides immediate relief to small businesses with non-disaster SBA loans. SBA will cover all loan payments including principal, interest, and fees, for six months.
- Provides immediate relief to small businesses with non-disaster SBA loans.
- SBA will cover ALL loan payments including principal, interest, and fees, for SIX (6) months. That's huge!
- Response from my lender when I emailed: "This program has not been developed by the U.S. Small Business Administration (SBA) yet. The SBA has until April 12, 2020 to have this program in place. Once the program is released we will address it"
- Provides immediate relief to small businesses with non-disaster SBA loans.
The 2 programs that pertain to most small business owners, like Optometrists are the Paycheck Protection Program and the Economic Injury Disaster Loans/Emergency Economic Injury Grants.
If you are a business owner, sole proprietor or a self employed individual, you will be eligible to receive forgivable grants as long as you meet certain requirements. Please take your time to read this article thoroughly and apply immediately as funds may become depleted.
This guide will focus primarily on these 2 programs:
(1) Paycheck Protection Program (PPP)
This would provide 100% forgivable loans (capped at 2.5x average monthly payroll) as long as the employer meets certain eligibility requirements and uses the loan during a covered 8 week period.
(2) Economic Injury Disaster Loans (EIDL)/Emergency Economic Injury Grants (EEIG)
Applicants of the Economic Injury Disaster Loans (EIDL) (due to COVID-19) are able to request an advance on that loan, of not more than $10,000. The advance becomes a grant, and does not need to be repaid under any circumstance.
Click how to see How to Step by Step Video Guide on how to fill out Application for $10,000 EEIG Grant
"Trump signed the $2 trillion stimulus package which also includes the Coronavirus Aid, Relief and Economic Security Act — or CARES Act. The purpose of the CARES Act is to alleviate this financial burden by providing loans that are 100% forgivable as long as they are used for eligible business needs"
Payment Protection Program (PPP) FAQs
Does my optometry office qualify?
If you employ less than 500 employees, then yes.
I am an independent contractor, am I eligible?
Yes. Sole proprietors, independent contractors, and self-employed individuals are all eligible for the Paycheck Protection Program.
How much “forgivable” loan money can I receive?
If you were in business from February 15, 2019 – June 30, 2019, your max loan is equal to 250 percent (2.5x) of your average monthly payroll costs incurred during the year prior to the loan date.
Example: monthly gross salary, including that of the owner is $20,000, then your “forgivable” loan will be $20,000 x 2.5 = $50,000
Remember that the $50,000 forgiven is 2.5x the average monthly “payroll” costs, measured over the 12 months preceding the loan origination date
If you were NOT in business during February 15, 2019 – June 30, 2019, then your max loan is equal to 250 percent (2.5x) of your average monthly payroll costs between January 1, 2020 and February 29, 2020.
This amount is intended to cover 8 weeks of payroll expenses and any additional amounts for making payments towards debt obligations. Maximum loan amount is $10 million.
What is the covered period of the loan?
There is an 8 week covered period during which expenses can be forgiven from February 15, 2020 to June 30, 2020. The 8-week period begins on the date of the origination of a covered loan.
Borrowers have the choice to delay funding of their loan until their offices re-opens, however, there will be no guarantees that funds will be still available.
Note: This period may cause some confusion, as we are uncertain of the exact date we can re-open our office. I believe this time frame may be extended to a later date, if the President orders a “Stay at Home” mandate extending past April 30th. Please stay tuned.
"There is an 8 week covered period during which expenses can be forgiven from February 15, 2020 to June 30, 2020. The 8-week period begins on the date of the origination of a covered loan. This 8 week period may be applied to any time frame between February 15, 2020 and June 30, 2020. Borrowers can choose which 8 weeks they want to count towards the covered period. Maximum loan amount is $10 million"
How can I use the money such that the loan will be forgiven?
The amount of principal that may be forgiven is equal to the sum of expenses for payroll, and existing interest payments on mortgages (if you own the real estate), rent payments, leases (Optos, OCT etc), and utilities that were in place before Feb 15, 2020.
Note: 75% of the funds must be used towards payroll for the funds to be forgiven.
Payroll costs include employee salaries as well as staff’s hourly wages and commissions.
Paid sick or medical leave, group health insurance premiums and state or local tax assessed on the compensation of an employee will also be forgiven.
Can I include my salary (the owner) into the loan forgiveness?
Yes, if you are on payroll, you will be able to pay yourself and have the loan forgiven.
Note: If you do not pay yourself a W2 salary, the PPP grant also qualifies self employed individuals, sole proprietors and independent contractors as well.
I employ a 1099/IC optometrist, can I use the PPP grant to pay for their salary?
New information has arised (4/2/2020) that IC will need to apply for PPP on their own. Owners cannot include IC pay into the payroll calculations. Please encourage your IC doctors to apply for PPP. Please verify with your lender.
I have an associate OD who makes $125,000 a year, will their payroll be eligible for forgiveness?
Payroll excludes the excess amount any employee makes above $100,000 annually. If any employee's salary is $125K/ year, loan forgiveness only applies up to $100K.
For example: if the employee OD or the owner OD makes $125,000 - to calculate their eligible monthly payroll, you will disregard any amount above $100,0000. In this case, you will use $100,000/12 months= $8333 a month of eligible payroll.
If they make $150,000 a year, same thing - $8,333/month of eligible payroll.
I pay into my employee’s health insurance - will that be forgivable?
Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums will be forgivable if paid within the 8 week covered period.
I paid for sick leave and medical leave during this time, will this be forgivable?
Yes, it is forgivable if paid within the 8 week covered period. This is not to be combined with the Qualified sick and family leave for which a credit is allowed under the Families First Coronavirus Response Act
I also contribute to my staff’s retirement account, will this be forgivable?
Yes, it is forgivable if paid within the 8 week covered period.
How do I calculate the Payroll Costs?
Gross wages + healthcare costs (i.e. group health insurance premiums paid) + retirement plan contributions.
What utilities cost are considered forgivable?
Electricity, gas, water, telephone/fax, or internet. Unsure if this applies to EHR/recall programs.
"Costs such as employee's health insurance, sick/medical leave/retirement and Utilities costs are considered forgivable"
What costs are not eligible for payroll forgiveness?
Excess payroll for any employee who makes more than $100,000 a year is not forgivable. Also, if you are receiving a credit to pay for the sick leave and FMLA per the FFCRA, then this is not forgivable, as it is considered “double dipping”.
Do I need to report the “forgiveness loan” on my taxes?
The loan forgiveness amount is excluded from taxable income.
I closed my office, but still paid my staff because I am a nice boss, will my payroll be forgiven?
Yes, if you paid them anytime between February 15 to June 30, then payroll will be forgivable, as long as it falls within the 8 week covered period that you choose. This program would be retroactive to February 15, 2020, in order to help bring employees who may have already been laid off back to work.
I will be opening a cold start practice in May, 2020 - will I qualify for this loan to pay for my employee’s salary, rents and utilities?
No. Businesses and entities must have been in operation on February 15, 2020 and prior.
Where can I apply for the Paycheck Protection Program?
You can apply for the Paycheck Protection Program (PPP) at any lending institution that is approved to participate in the (SBA) 7(a) lending program and additional lenders approved by the Department of Treasury.
You can call your bank or find SBA-approved lenders in your area through SBA’s online Lender Match tool. https://www.sba.gov/funding-programs/loans/lender-match (Currently, the lender match is not-functioning).
Application begins Friday, April 3rd for business owners and on Friday April 10th for 1099 and sole-proprietors. Borrowers can only apply online through their SBA lender.
"If you kept your employees paid despite being closed anytime between February 15 to June 30, then payroll will be forgivable, as long as it falls within the 8 week covered period that you choose. This program would be retroactive to February 15, 2020, in order to help bring employees who may have already been laid off back to work"
I laid off my employees, will I be able to qualify for loan forgiveness?
In order for the loan to be 100% forgiven, you must maintain the same number of employees from February 15, 2020 through June 30, 2020, as you did during either the same period in 2019 (2-15-20 to 6-30-19) or from January 1, 2020 until February 15, 2020 (if you recently opened your business).
However, if you keep all of your employees, 100% of the loan will be forgiven. As long as 75% of the funds are used for payroll.
If you have already laid off some employees, your loan can be forgiven for the full amount if you rehire all your employees back and pay them at least 75% of their full salary by June 30, 2020.
I have 6 employees, (including myself, the business owner), and I laid off 3 employees. Will I qualify for loan forgiveness?
The forgiveness will be reduced by the percent decrease in the number of employees, in this case, by 50%.
If I have reduced my employees hours, will I still be eligible for loan forgiveness?
Reducing their hours will directly reduce their wages. The amount of the forgiveness for the loans will be reduced if the employer reduces the number of employees during the covered period or reduces the salary or wages paid to an employee by more than 25% during the covered period (as compared to the most recent quarter). If your total payroll expenses decreases by more than 25 percent, loan forgiveness will be reduced by the same amount.
However, an employer may avoid the loan reduction if the employer rehires all employees laid off since February 15, 2020 and increases previously reduced wages to >75% (of their regular wages), by June 30, 2020.
Am I responsible for interest on the forgiven loan amount?
No, if the full principal of the PPP loan is forgiven, the borrower is not responsible for the interest accrued in the 8-week covered period.
Can I use the PPP loan to buy new equipment?
You can, but that portion of the loan will not be forgiven.
What is the interest rate and terms for the loan amount that is not forgiven?
Any loan amounts not forgiven will be subject to the following terms: 2 years at 1% interest rate with no prepayment penalties.
All payments are deferred for 6 months starting at the origination of the loan; however, interest will continue to accrue over this period.
You will not have to pay any fees on the loan, and collateral requirements and personal guarantees are waived.
*Updated as of 04/03/2020
"You can use PPP loan to buy new equipment but that portion of the loan will not be forgiven. While any loan amounts not forgiven will be subject to the following terms: max 10 years, and capped 4% interest rate. Principal and interest will continue to be deferred, for at least six months and up to one year starting at the origination of the loan. You will not have to pay any fees on the loan, and collateral requirements and personal guarantees are waived"
I received the loan, and paid all my “covered expenses”, when will the loan be forgiven?
The loan is forgiven at the end of the 8-week period after the origination date of the loan. Assuming April 15th, 2020 origination date, your loan will be forgiven on June 15th, 2020. You must meet payroll eligibility requirements (see above) by June 30th to have the full amount forgiven.
What information do I need to send the lender to qualify for loan forgiveness?
Borrowers must submit an application for forgiveness to their lender. In this application, you must include:
1) Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings.
2) Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.
3) Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for us
I will be receiving unemployment benefits, can I still apply for PPP?
Yes, you can. However, you need to re-hire yourself and your employees back at >75% of wages (by June 30th, 2020) to have your PPP loan forgiven.
When is the application deadline for the Paycheck Protection Program?
Applicants are eligible to apply for the PPP loan until June 30th, 2020.
Economic Injury Disaster Loans & Emergency Economic Injury Grants (EIDL/EEIG) FAQs
What is an EIDL and what is it used for?
EIDLs are lower interest loans that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses. COVID-19 is a covered disaster. Maximum loan amount is $15,000 (reduced from the initial $2 Million when the program launched).
At the request of the borrower, the loan can be turned into an advance/grant (EEIG), at a max amount of $10,000. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.
On April 6, the SBA made a decision to scale down their $10,000 advance and capped the maximum amount to $1,000 per employee as opposed to the $10,000 stated initially. It is unclear what amount will be granted to applicants who have zero employees
"EIDLs are lower interest loans that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses. COVID-19 is a covered disaster. Maximum loan amount is $2 million.
At the request of the borrower, the loan can be turned into an advance/grant (EEIG), at a max amount of $10,000"
What are ineligible uses of the EIDL/EEIG?
Refinancing long term debt. Paying down (other than regular installment payments) or paying off loans provided, guaranteed, or insured by another Federal agency or a Small Business Investment Company. Payment of any part of a direct Federal debt, (including SBA loans) except IRS obligations.
Who is eligible for an EIDL/EEIG?
Small businesses who employ fewer than 500 employees, that were in operation prior to January 31, 2020. Sole proprietors and independent contractors are also eligible.
How do I convert a loan (EIDL) to a grant (EEIG)?
First you will need to apply for an Economic Injury Disaster Loan (EIDL) and then right after, you must request for the advance, maximum amount of $10,000. This advance will become a forgivable “grant” (EEIG). You can either accept or deny the remainder of the loan. Loan terms are up to 30 year term and caps at 3.75% interest.
For example: If you qualify for a $100,000 loan (EIDL), you can accept the $10,000 as a grant (EEIG), and reject the remaining $90,000.
I have a cold start practice set to open June, 2020, will I be eligible for this grant?
Borrowers need to be in operation prior to January 31, 2020 when the public health crisis (COVID-19) was announced.
How long are Emergency Economic Injury Grants (EEIG) available?
January 31, 2020 – December 31, 2020. The grants are backdated to January 31, 2020 to allow those who have already applied for EIDLs to be eligible to also receive a grant.
When will I receive my (EEIG) grant?
SBA will distribute the grant within 3 days. Note that due to overwhelming demand, we expect wait time to be a little longer.
How does my business combine both the PPP and the Economic Injury Grant (EEIG) together?
You may want to apply for the EEIG first and then refinance it into a PPP.
If you ultimately receive a PPP loan or refinance an EIDL into a PPP loan, any advance amount received under the Emergency Economic Injury Grant Program (EEIG) would be subtracted from the amount forgiven in the PPP.
- Amount of EEIG grant: $10,000
- Amount of initial forgivable PPP loan: $50,000
- New amount of forgivable PPP loan: $40,000 ($50,000 - $10,000) ($10,000 is no longer forgivable)
- Total amount eligible to be forgiven: $10,000 EEIG + $40,000 PPP = $50,000
However, you cannot use your EEIG for the same purpose as your PPP loan.
For example, if you use your “Your EEIG to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April” . This is directly from the Senator’s website
Our understanding is that you can use the EEIG (Grant) to pay for payroll that does NOT overlap with the payroll periods that you are using the PPP to pay for. In this case, using the example above you will have $60,000 of forgivable money ($10,000 EEIG + $50,000 PPP), as long as the purpose that you are using the loans for does not overlap.
Note: This is a very confusing point and should be clarified with your lender
Other ideas for using the EEIG grant that will NOT overlap with the PPP forgivable loan purposes: paying for lab (optical/contact lens) bills, inventory, ophthalmic supplies etc.
Remaining portions of the EIDL, for purposes other than those laid out in loan forgiveness terms for a PPP loan, would remain a loan.
"EEIG to cover payroll for certain workers in April, you cannot use PPP for payroll for those same workers in April, although you could use it for payroll in March or for different workers in April” -Senate
Our understanding is that you can use the EEIG (Grant) to pay for payroll that does NOT overlap with the payroll periods that you are using the PPP to pay for"
How do I apply?
To apply, visit here @ COVID19 Relief SBA.Gov Application
Can I apply now?
Yes, loan applications are available now and first come first serve. There is no obligation to accept the loan if you qualify, and you will have 60 days to accept it. It is recommended to apply ASAP as funds can become depleted quickly.
What are qualification Criterias for the EIDL?
EIDL’s approval is based solely on an applicant’s credit score (not repayment ability and tax returns are not required). The CARES Act also waives the requirement that you must not have credit elsewhere. That means you can apply even if you already have a credit line elsewhere.
Are there any fees for the EIDLS/EEIG?
There are no loan fees, guarantee fees or prepayment fees.
Both of those programs seem great, which one should I choose?
Both of these programs can soften the financial burden for many struggling businesses. Businesses can use these loans and grants to pay for a variety of expenses to get the business back to full capacity.
The CARES Act allows an eligible business to receive both a PPP loan and an economic injury disaster loan (EIDL) or grant from the SBA under certain circumstances - such as if the EIDL is made before the PPP loans are available and that there is no duplication in the uses of funds.
For example, you can use your EEIG to cover payroll for certain periods that do not overlap with the PPP payroll periods. Or you can use the EEIG to pay for business expenses that are not covered within the PPP forgivable loan.
For business owners who have a smaller payroll (thus a smaller PPP loan amount)l, I would advise applying for the EEIG grant as this will provide a lump sum of $10,000 that does not need to be paid back.
I recommend doing some quick math and draw out some scenarios to choose the best program that gives you the most forgivable funds.
"The CARES Act allows an eligible business to receive both a PPP loan and an economic injury disaster loan (EIDL) or grant from the SBA under certain circumstances - such as if the EIDL is made before the PPP loans are available and that there is no duplication in the uses of funds.
For example, you can use your EEIG to cover payroll for certain periods that do not overlap with the PPP payroll periods. Or you can use the EEIG to pay for business expenses that are not covered within the PPP forgivable loan."
Thanks Julie. You are the best!’
Thank you! This was very helpful and much appreciated!!!
I have a practice in Orange county. I have been closed since the governor’s mandate on March 19 since Optometry is not considered an “essential” business. My staff are applying for unemployment. With the roll out of the Paycheck Protection Program, I hear there is a “rush” to apply before all the funds are gone. The stipulation for loan forgiveness is you have to REHIRE most if not all of your previous number of employees the day you submit your PPP loan. Then you’ll eligible to get 8 weeks worth of payroll “loan forgiveness” starting from the date of submission. What if you are not allowed to open yet? You are “burning” through some, or heaven forbid, ALL of the 8 weeks of your loan forgiveness while your staff is idle and your office is closed. On the other hand, if you wait until the “all clear” sign and open, then rehire your staff, you may risk the chance that the PPP funds are all out. What to do? What to do? . I would love to know how many of you suggest to apply right away and just “burn” through the funds as needed, or the majority say to wait until we open again and apply for the PPP loan. Any comments and advice is greatly appreciated