PPP & EIDL: the opportunities & pitfalls that impact ODs’ personal finances

May 31, 2020
Over the last few weeks the EIDL and PPP loans have been rolling in to practices, lifting a heavy financial burden off of practice owners. While I’m not a practice management expert, I’m having a lot of calls with clients on the best way to spend their proceeds because it impacts their personal planning too. What’s come out of these calls is below—keep it handy as a reference for using government program proceeds.

Purpose First
Most doctors are intimately familiar with the terms of these, but it’s important to re-address them anytime you spend money associated with a loan or grant from the government.

PPP- meant for payroll but can also be used for rent and utilities
EIDL- alleviate financial harm caused by COVID-19
HHS- Prevent, prepare for and respond to coronavirus

Before you spend any proceeds, figure out which bucket it falls in, and if it’s not one of the above, it needs to be taken care of with practice dollars, not government dollars.

Document, Document, Document
The US government has put an unprecedented amount of money into the system. Money it’s had to borrow to give out. Money they’re going to be unhappy about if used incorrectly. Don’t assume your practice is too small for scrutiny—you need to account for every penny received and used.

In addition to keeping a separate bank account for loan proceeds, I suggest keeping a file folder, either physical or on your computer, for each program you’ve benefitted from: PPP, EIDL, HHS, or any others. In that folder you should have a running tally of where funds have gone (I’ve attached one here as a reference) AND the corresponding documentation like invoices, payroll summary, a copy of your rent check—everything.

In addition, on each piece of documentation, write a note on what source it came from and how it applies to that source. For example: PPP loan- a print out of payroll for week 2 + 3 of PPP period (6/1/20-6/14/20). Or: EIDL loan, payment to vendor XYZ that revenues couldn’t cover. That way, if the SBA comes knocking for accountability (which it can and will for many businesses), you’re ready.

Plan Ahead
These loans—especially the EIDL—come with some catches that need to be considered as you move forward with your practice. Here are some catches you should be prepared for:
  • Set aside any PPP money you will need to pay back (either an amount you expect to be unforgiven plus any EIDL grant funds
  • The EIDL loan has some fuzzy wording about:
    • Relocating
    • Using American made equipment. (so if you’re thinking of new display cases, you’d better consider ones make in America first, and if you choose something else, have notes on why)
    • Not paying for reimbursable expenses (ie, insurance)
    • Not selling collateral—technically upgrading your OCT machine and selling the old one is selling collateral and against the loan document
    • Paying back the SBA when any other grants or government programs are received (PPP is an exception)
    • Not making any distributions to owners. This is a THIRTY YEAR loan. While 3.75% for 30 years is a great deal, if it’s not realistic to not take a distribution for 30 years, create a plan to pay it down faster. And change your salary to a fair market wage!

When in doubt, and BEFORE making any changes, call the SBA for permission. These are nit picky things, but in the event of an audit, it’s better to cover your bases in advance. If you cannot spend these funds in accordance with their terms and conditions, keep them set aside in cash until you can use them correctly, or repay them when Covid has passed and a vaccine is available.

Opportunity in Disguise
My favorite part of talking with doctors about these things is to hear about the opportunities they’ve found. Some of these have been:
  • PPP Funds: Hiring better people. In just a few months we’ve gone from one of the tightest, hard-to-hire labor markets in recent history to record-breaking unemployment claims. Good people are out there—go find them
  • HHS Funds: Remodeling for a cleaner, socially distanced, sanitary environment
  • EIDL Funds: Paying vendors and other obligations incurred during COVID-19, allowing cash in the practice to rebuild and create an emergency fund

A final thought… for most ODs, their practice is their largest personal asset, and a lot of times it’s treated as such. Which your practice should always be run as an independent entity (and by this I mean keeping personal expenses personal and practice expenses in the practice), it’s a lot more important to do so if you’ve accepted government money. Take this opportunity to clean up any commingling, get to know your expenses and cash flow better, and make your practice as well run as you can.
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