How the government is helping practice owners
A paycheck protection loan and an economic injury grant are two of several business-friendly programs available to veterinarians.
Veterinary practices nationwide have suffered financially during the COVID-19 pandemic. Here are some of the best programs available that can help keep your hospital afloat and your employees employed.
Paycheck Protection Program (PPP)
This U.S. Small Business Administration program helps cover the cost of retaining employees. If revenue has declined, you might have cut staff hours or laid off team members. The government hopes that by taking out a PPP loan, you will keep employees on the payroll. Why should you?
- You can show your employees that you care and will help them. Three out of every four U.S. workers live paycheck to paycheck, according to a 2017 report by the employment website CareerBuilder. Your employees will be thankful.
- The government might forgive the loan as long as employment and compensation levels are maintained for at least eight weeks and the funds are used to cover payroll, rent, utilities and mortgage interest.
It’s important to realize that if you already laid off people, you can still qualify for loan forgiveness if you restore the employee numbers. Not everyone has to be an original employee because new hires will count.
Amounts not forgiven will be deferred for six months to a year. The interest rate is 4%, and there are no loan fees. Cancellation of debt is usually a taxable event, but the government specifically excluded the proceeds under this program.
How much can you get? The answer is 2.5 times your average monthly payroll cost. The calculation is different if you were in business in 2019 and if you have seasonal employees.
To apply, contact a local bank, preferably one with whom you have a relationship. Banks are overwhelmed with PPP applications, so your best bet is to approach one that knows you.
For a list of qualified lenders, visit https://bit.ly/3aQBP05. The application deadline is June 30, 2020, but don’t wait as the amount of money to be distributed under the program is capped.
Also note that PPP proceeds cannot be used to cover qualified sick and family leave payments. That is part of the Families First Coronavirus Response Act.
Economic Injury Disaster Loan and Emergency Economic Injury Grant
If you need a smaller and quick infusion of cash to pull you through, an Emergency Economic Injury Grant (EEIG) might be right for you. The EEIG is getting a lot of attention as the government promises a $10,000 advance within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). Grants do not need to be repaid.
Applicants can be businesses employing 500 or fewer people as well as sole proprietors, independent contractors, employee-owned businesses and cooperatives. The application deadline is Dec. 31, 2020.
Recipients of an Emergency Economic Injury Grant or an Economic Injury Disaster Loan may take out a Paycheck Protection Program loan as long as the use of funds is not duplicated.
Employee Retention Credit
This IRS program is for employers whose operations were fully or partially suspended due to a government order limiting commerce, travel or group meetings. The tax credit also is provided to employers that experienced more than a 50% reduction in quarterly receipts when measured year over year. The credit covers up to $5,000 in wages for each employee.
Keep in mind that the Employee Retention Credit is not available to businesses that received a PPP loan. The credit is provided until the end of 2020.
Delay of Payment of Employer Payroll Taxes
The Coronavirus Aid, Relief and Economic Security (CARES) Act provided what might be the easiest cash-flow solution for many veterinary practices: deferment of employer payroll taxes through the end of 2020. One-half would be due by Dec. 31, 2021, and the other half by Dec. 31, 2022. Remember that this is a deferment, not forgiveness.
My advice to you is carefully look at your financial situation. Was your first quarter of 2020 identical to the first quarter of 2019? How big was the difference? How long will your available cash last if you have no sales for the next two months? What is the biggest expense you can cut right now?
My least favorite option of those outlined above is delaying the payment of payroll taxes. Choosing that option could come back to haunt you because you, as the owner, would be personally responsible for any unpaid taxes. Liability protection under an LLC or S-Corporation would not help you, and a key employee such as a practice manager could be at risk, too.
To me, the Paycheck Protection Program and an Emergency Economic Injury Grant might be the best ways to go for most small businesses. I advise not making the decision on your own. Instead, consult your financial team.
Mira Johnson is managing partner with JF Bell Group, a CPA firm serving exclusively veterinarians. To learn more, visit www.jfbellgroup.com.
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