Navigating Financial Options for Small Businesses

Hi, everyone. Welcome to the fourth episode of Catch Up with ChiroTouch. I'm one of your hosts, Dr. Tami Howard, and I'm excited to talk to our CFO, Brad Nelsen, about how to navigate the various financing options we have to survive the current COVID-19 pandemic.

Hey, Brad, thanks for joining us today.

Hi, Tami. It's great to be here.

Before we begin, I wanted to quickly mention that we've been following the news and updates on the pandemic very closely, and love to bring our perspective to the ChiroTouch community. However, these podcasts are for informational purposes only. If you would like specific guidance on your practice, your financial advisors or baking reps can help you.

Yeah, I'm glad to have you here. This is an important topic, I think, that is on many people's minds right now, as they look to how their long-term financial health shapes out regarding the closures that they may have experienced or significant business impact that they might have had over the last couple of months. Before we jump into things, I think it might be helpful to give people a little bit of an overview of what some of the different programs that are available to offices are to help them get through these times financially.

Sure, absolutely, Tami. Right now, there's three main programs out there that we've been following, trying to follow pretty closely. These things have been changing fairly frequently.

The first one I'm sure most everyone's heard about is the Paycheck Protection Program, offered through the SBA, or Small Business Administration. This is a loan that can convert into a grant if you meet certain requirements for how you spend that money. So I think this is a popular program that's out there for small businesses and something that folks should really look into.

Potentially 75% of the loan must be used for payroll expenses, and the other 25% of the loan must be spent on utilities, rent, and any other business debt that a practice currently might have. So with those kind of requirements, potentially the full amount of the loan can be relieved. There's been frequent updates lately, and one possible update, I think it's in the house, is that the requirements for how the money you might spend will change, and the amount you have to spend on payroll potentially would be reduced to 60%, and then you can spend more up to 40% on utilities, rent, and debt.

So always need to continue to check with your financial institution, lenders, or on sba.com to find out about new updates to the program. There is also another program called Main Street Lending Program. This is another loan program available for small businesses.

And again, these loans would be issued through regular banks. The minimum loan size is a little bit larger. It's $500,000.

But it still does apply for businesses with less than 15,000 employees and $5 billion in annual revenue. So while it might be out of the realm of many small practices, it's something else you'd probably want to look into. Another loan for small businesses called the Economic Injury Disaster Loan, or otherwise known as the EIDL.

This is a program available for business owners that have suffered kind of catastrophic losses or some other economic injury. As of right now, this is only open to agricultural businesses. But again, if you might have applied for this previously, they are just starting to provide the funding to the businesses themselves.

So I would check in with your lenders about the status of that.

Thanks for that background. I know that there's been quite a bit of talk in social media channels in terms of the Paycheck Protection Program and also the EIDL. There's been less talk on this Main Street Lending Program.

So I think it's nice to hear that there might be a third option that's available to people that they had not otherwise considered. As far as the Paycheck Protection Program goes, there's been a lot of chatter recently on what you'll need to do in order to get that potentially forgiven. There's been a lot of talk recently online about how can we track that money to make sure that we can get that loan forgiven if possible.

Any tips or tricks on how to keep track of that, to make sure that we can apply for that forgiveness when the time comes?

There's a couple of different ways that you can use to help track how you're spending your money. The first one I'd recommend is some sort of accounting program like a QuickBooks. It's very easy to use as well as to track an individual expenses through your business.

That way, you can make sure that during the period of time that you have to be spending the money in a certain way, you know exactly what you're spending your money on by the different categories of expenses. Another way you could use is just to set up a different account at your credit union or your bank and just issue payments through that bank to be associated with the required expenses for the loan, whether it's payroll expenses, again, your rent, utilities, or previous business debts.

That makes sense. I know that a lot of people obviously want to get that loan forgiven and have a great ambition towards seeking that forgiveness so that they don't take on additional debts. But can you give us a little bit of an understanding of what will happen to any businesses that would not qualify for forgiveness?

Sure. I mean, what the program indicates right now is that if you, again, don't qualify for the full forgiveness of the loan, the outstanding balance would then just continue to accrue interest. It's at a very low interest rate, mind you.

It's at one percent. And it's for the remainder of the two year period of the loan. So from that standpoint, it's a very low interest loan that would have no prepayment penalty either.

So depending on how long it takes your business to recover and your cash flow to restore itself to be able to kind of pay this back off, I would say if you don't qualify, then it's just a matter of making sure you can pay that off. It has a very low interest rate. And then just one other point here is that always continue to check back and work with your lender.

Potentially, you can submit additional documentation and they can give you additional guidance on how to try to get your loan re-evaluated so that potentially it might be forgiven.

Right. That makes sense. That one percent interest maybe helps people feel a little bit more at ease as well, if there was any constraints.

I know that some of the conversations have also been regarding maybe a portion of that being forgiven and then the other portion not being forgiven. It may not be a black and white type of scenario where you get it forgiven or you don't. There may be some percentage of forgiveness available as well, and then you would just accrue that interest on the remainder that's not forgiven.

I think that those terms are pretty nice. You don't generally get money quite that cheap out there. So I know that a lot of people are looking for that as their bridge until they get back to their financial health that they were at before.

Yeah. That's a very good point, Tami. And again, I would encourage people to stay in close communication with their lending institution, just again, for any changes to the program or for assistance and help kind of navigating the various terms and how it works, because it can get quite complicated.

Right. And with all the changes that have happened as well. Now for offices that may not have applied yet for PPP, are they still able to apply for PPP?

Yes. Applications are still being taken. And we've heard from a number of folks that sometimes it takes a couple of applications to get through it.

So it's a little bit complicated at times, but I would persevere, continue to work with your lending institution or your own accountant or other financial advisor to help kind of through the process. Sometimes it might take a couple of rounds of applications to get it through. And then as we've all seen in the news, Congress is approving additional rounds of funding.

So if you don't get it approved the first time, I would continue to try.

Yeah, I've seen, again, a lot of chatter on social media about people trying to get through for that PPP and failing. In fact, I've seen a couple of people that have had some significant success getting those applications processed through PayPal, which is interesting. So it's an avenue that maybe not everyone would have considered.

So maybe a little bit quicker than trying to go through a traditional bank for those.

Yeah, absolutely. PayPal has kind of started to morph like a traditional bank. They do have credit card and other lending capabilities.

Yeah. And I know a lot of the clinics that we have out there, they're chiropractic users in the chiropractic industry at large. Some of them do function as kind of sole proprietors.

They may not even have any staff that they're working with. It may just be a one man band, if you would. For those types of offices, if they don't have employees on payroll, can they still qualify for loan forgiveness?

Yes, definitely they can. If they are a sole proprietorship or a partnership, and they don't have any employees, they can still get a payout of about eight weeks worth of owner compensation to replace their compensation. So they can still qualify for that.

I believe it's based on their previous year or 2019 tax return. So again, I'd encourage folks to look at the details of the program, potentially work with the lenders to understand how that might work. Again, if they're a sole proprietorship and they don't have any employees.

For the PPP being based off of the payroll expenses that a company has, obviously, the loan amounts there are going to be a little bit on the smaller side potentially. And for offices that might need a larger assistance program, the Main Street program might be something that could potentially be beneficial. What scenarios do you see the Main Street program being beneficial?

Again, if the PPP is not enough of a loan to cover your full business expenses, and you potentially have had to shut down for a month or two, and as you ramp back up, I mean, these loans can be layered in conjunction with each other. So I wouldn't rule out looking at other loans that might be available. And again, the Main Street program, while it's bigger loan amounts, it can be used to kind of cover the gap of business expenses that the PPP, if you still want to get that forgiven, then you can use this other loan program to cover those expenses.

So it's always a good option to kind of look at that to secure additional funding. It's got a slightly higher interest rate at about 3% plus whatever the current LIBOR rate is. LIBOR is basically a benchmark variable rate that banks use.

So currently, that's going to be kind of in the range of 3% to 4% total interest. The loan repayment term is longer. It's four years versus the two years of the PPP.

So again, you can use it to manage some of the other business expenses that you might have, and you've got a longer repayment term. So you can manage that over the longer term.

Right. Yeah. This might be a good option for those offices that didn't previously apply for the EIDL.

Since the EIDL has now been closed off to everything, but is non-agricultural. If they previously applied for EIDL and have gotten that disbursement or will likely soon get that disbursement, they may not need this other gap measure here. But if it's something where they've got the PPP to maybe cover their payroll expenses, but they need access to other money there to bridge the gap for them, this might be a better option for them since that EIDL program is no longer open to them.

This one is something I haven't heard a lot of people talk about. I think it's a good thing for us to be talking about here on the show so that people can look into it and understand it better. Considering how things are changing on a day-to-day basis, what are some of the best areas for people to stay up-to-date on these programs?

I'd say a couple of the sites where we've found has the most relevant and up-to-date information, especially on things that have kind of passed Congress and have become law. Obviously, are the sba.gov website. That's a small business administration website.

Again, there's a host of information there, specifically around the coronavirus programs that are available today. In addition, there's another government website called federalreserve.gov, that's got additional information there. Again, I would encourage people to speak with their local lending institutions, banks, credit unions, as they will be keeping up to date on all the exact terms of how the loans work, how to apply for them, and most importantly, how to take advantage of, let's say for example, the PPP to get that fully forgiven.

Well, thanks again, Brad, for sharing your perspective on this topic with us. Thank you to our listeners for tuning in to catch up with ChiroTouch. I'm your host, Dr. Tami Howard, and we'll be having a new episode every single week on Spotify, iTunes, and chirotouch.com/podcast.

Next week, we'll have Dr. Brian Blask and Dr. Nick Fanning speaking about his family wellness practice in Nebraska, discuss the different types of techniques in chiropractic and the importance of forming relationships with other chiropractors to be successful. If you have questions, feedback, or requests, email us at podcast at chirotouch.com. We would love to hear from you.

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