Constant changes to the PPP and EIDL have been difficult to follow as we try to navigate the other business challenges posed by the global pandemic. We have covered all of the developments thus far in my recent solocasts, and as things continue to evolve, I want to make sure you have all the available information.

Right now, we are not recommending that any of our clients apply for forgiveness. But if for any reason you are going to be reducing your headcount, you should apply for forgiveness before that takes effect. If you applied in the first round, you have the option to choose between the eight-week or 24-week covered period. However, those who applied in the second round only get to elect the 24-week period. This is the maximum time you can wait to apply for forgiveness, and you must meet the headcount requirements before that time.

Another thing to consider is owner compensation. Your covered period compensation cannot exceed 2.5x your 2019 compensation, capped at the annualized amount of $100,000. What that means is, when you do your calculation for forgiveness and calculate the wages paid, your wages are capped at $20,833.

There are also updates to the safe harbor during the eight week or twenty-four-week periods. If you are back to the full-time equivalency at the end of your covered period, there are a couple of safe harbors:

1. There is no reduction in forgiveness if the reduction in headcount from the period of 2/15/20-4/26-20 results in your inability to rehire employees or similarly qualified employees from that time period.
2. There is no reduction in forgiveness if the drop in headcount from the period of 2/15/20-4/16/20 results in the company being unable to operate at the same capacity they were operating at before that time period.

For the EIDL, anyone that applied when they reopened on 6/24/20 is likely going to be approved fairly quickly. Some of our clients have been funded in seven days; some in as little as forty-eight hours. The loan is capped at $150,000 and paid back over thirty years at an interest rate of 3.75%. That’s roughly only $750 a month, but the downside is that the EIDL grant will reduce your PPP forgiveness eligibility by an equal amount. It is designed to be used for operating expenses such as payroll, interest payments, rent, etc. And once you’re qualified for the loan, you can use it for almost all operating expenses excluding things like long term debt.

Based on the potential for additional taxed revenue with multiple loans/grants, you should start discussing your tax planning strategy with your CPA now. Make sure you have money set aside so that when tax season comes around, it doesn’t catch you off guard.

As always, please visit me at www.theprogressivedentist.com for more informative, money-saving podcast episodes like this one.