By Alex R. Thiersch, JD, CEO of the American Med Spa Association (AmSpa)
It’s been less than a week since the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed and today (Friday, April 3, 2020), loan applications for funds created by the act are being accepted for the first time. As you can imagine, there’s a lot of conflicting information out there about what is available, what is needed from applicants and what the conditions of these loans are, and the situation is a very fluid one. It’s creating a great deal of confusion at a time when that’s the last thing small business owners need.
To that end, AmSpa is teaming up with its contacts in the legal, financial and governmental realms to provide you as much accurate information as possible. In the past few days, we’ve posted several blog posts that go in depth into the special loans being made available and how small business owners can obtain them, conducted a webinar discussing these loan programs and what small business owners need to know about them and posted a video addressing the issues that are emerging from the banking sector. And we’ll continue to cover this hugely important topic with whatever accurate information emerges next as it becomes available.
To that end, AmSpa is hosting the webinar The CARES Stimulus and Med Spas, MSOs, and Independent Contractors—A Live Q&A About What You Need to Know on Tuesday, April 7, featuring top experts in the legal and financial fields. Stay tuned for more information about registering for this webinar.
Here’s a quick look at what you need to know:
What are we talking about? Primarily, the Paycheck Protection Program (PPP) loans being made available to small business owners through the CARES Act.
How will they help? The PPP loans will provide 2.5 times your average monthly payroll costs (to a maximum of $10 million)—see the next bullet point t. The entire amount of the loan can be forgivable, provided you spend it on approved payroll and operating costs within the first eight weeks after the loan is made. In order to qualify for 100% forgiveness, you must maintain your number of employees and their wage levels, and 75% of the PPP loan funds must go to employment costs (25% can go to mortgage interest, rent and utilities). You also have the option of refinancing a U.S. Small Business Administration (SBA) economic injury disaster loan into this program if you wish.
What are “payroll costs?” Payroll costs include compensation paid to employees. This can be salary, wages, commissions, estimated tips, paid leave (vacation, PTO, sick, family leave) and severance pay, and payments made for employee benefits, such as group health coverage, insurance premiums, retirement plans, and state and local taxes on compensation. Payroll costs do not include compensation to employees who reside outside the United States, employee compensation in excess of $100k, Federal employment (FICA) taxes, income taxes withheld, and payments for sick and family leave provided under the Families First Coronavirus Response Act. Additionally, independent contractors are not included in payroll costs.
When should you apply? If your financial institution is currently offering PPP loan applications, apply immediately. Applications were to open starting today, April 3, 2020, but some lenders are not accepting them yet. Please also note that some of the loan process details are still being worked out with many banks, so processing may be delayed. If you work directly with someone at the bank, ask them to let you know what’s happening ASAP. Loans can be issued as late as June 30th provided there are still funds available.
What do I need to apply? You will need:
- Payroll expense verification documents, including IRS Form 944 for 2019; IRS Form 941 for most recent quarter reported; payroll summary report detailing individual employee payroll data for 2019; detail of employee payroll benefits, including vacation, allowance for dismissal, group health care benefits, retirement benefits, etc.; and certification that all employees live within the United States—if any do not, provide a detailed list with corresponding salaries of all employees outside the United States;
- 2019 financial statements or 2019 federal tax return;
- Articles of incorporation or organization of each borrowing entity;
- Bylaws or operating agreement of each borrowing entity;
- Driver’s licenses from all owners with ownership of at least 20%;
- Most recent mortgage statement or rent/lease agreement; and
- Most recent utility bills (electric, gas, water, telephone).
When can I expect to see money from this? At this point, it’s impossible to say, since none of the loans have been processed yet. However, it is expected to take at least three weeks. Practically every small business in the U.S. is applying for these loans, and it’s very likely that will create a glut that lenders will be working through for some time. Do also understand that currently this program has a limited amount of funds ($349 billion) and loans are made on a first-come first-served basis. Once the money is used up, no additional loans can be made (unless Congress authorizes more funding). So do not delay in applying.
How is this loan forgiven? Up to 100% of the loan can be forgiven if the money is spent within the first eight weeks on at least 75% on payroll costs and 25% on payments for interest on mortgage payments, rent and utilities. Any payments on interest or rent must be for obligations that started before February 15, 2020. Additionally, the forgivable amount can be reduced if you reduce employee wages below 24% or have fewer full-time employees when compared to the same period last year or during January and February of this year.
What are the loan terms? For loan funds that are not forgiven, the terms are for two years at 1% with no payments due for the first six months (although interest still accrues).
This is an unprecedented time for medical spa owners, and it is hugely important that they receive the most accurate, timely information available. We at AmSpa are uniquely positioned to provide that for you. This industry is incredibly resilient, but we’re facing a challenge unlike any we’ve ever seen. Help is on the way, but it’s not here yet. Hang in there, if you can. We’re all in this together, and we’ll do anything we can to help medical aesthetic practices through this phenomenally difficult time.