PPP loans and practical financing options
Medical economics: Many independent medical practices have seen a drop in patient volume due to COVID. Are PPP loans a good option for them to get through these difficult times?
Ben Johnston: I think this is a great opportunity for medical practices that have seen a drop in patient volume due to COVID to stabilize their business. The capital is intended to help business owners pay employees, pay rents and other unpaid bills, invest in the reopening, and resume operations. It’s actually a five-year loan with a 1% interest rate with no payment for the first 10 months. This is one of the cheapest financings that a small business is really going to find in the market, and much, if not all, of this loan is likely to be canceled just by paying your bills and paying your bills. employees. The program therefore has enormous advantages. Most businesses will see a limited inconvenience in taking out the loan, even if it is not completely canceled.
ME: Are there any downsides to PPP loans?
BJ: Perhaps the biggest downside is that if you’ve already reduced your staff and spending base, you might ultimately be entitled to more money than you have right now to beg your pardon. The loan amount you will receive is calculated as two and a half times the historical monthly payroll. This therefore represents approximately 11 weeks of pay. Businesses have 24 weeks to accumulate expenses that can be used to document forgiveness, and expenses eligible for forgiveness include your payroll, which is really the primary focus of what the government is trying to do with this program, but also your rent, any mortgage interest. you may have, utilities, operating expenses, property damage charges, supplier costs, and worker protection. These are all of your expenses that you would likely have in your business. And 60% of your qualifying rebate must come from the payroll expense payment, so if you have already significantly downsized your staff and reduced a lot of those unpaid expenses, you may not receive 100% of the rebate. of the loan. opportunity. But in my opinion, it is still a very low interest rate loan with very favorable repayment terms. If you are a struggling business that could use this capital, I really encourage you to take the opportunity.
ME: How long does it take to receive the PPP money?
BJ: So our experience in the second round is that the subscription part of the application process takes longer than it did in the first draw. This is likely due to the fact that more stringent criteria are in place for companies to qualify for the second draw. Thus, the second draw requires small businesses to demonstrate that their revenue for at least one fiscal quarter of 2020 has decreased by 25% compared to the same fiscal quarter in 2019. Thus, many businesses have experienced difficulties in the second or third quarter. in the third quarter of 2020, and in In order to qualify, they will need to demonstrate that one of those four quarters was down 25%. Also, financial institutions that submit claims to the SBA first subscribe the files before submitting them, and then those files are subscribed again by the SBA. They really look at this financial data and try to determine that in fact your business has been weakened by COVID. This level of subscription probably didn’t happen in so much detail in the first round, so we tell clients to expect a two to three week process between requesting and receiving funds.
ME: So regardless of whether they took money in the first round, are they still eligible for money in the second round?
BJ: Absolutely, as long as they meet the eligibility criteria. If they took out the first round loan and used it properly, and you can show that you had a reduction in your income of at least one fiscal quarter 2020 compared to 2019 by that amount of 25 %, we encourage you to apply you can visit the Bridge-Payday website to learn more And, and this is really the second raffle concept and why it was put in place.
ME: Aside from PPP loans, what other options are available to help a practice survive?
BJ: There are a number of additional loan products that will likely be available to healthcare professionals with open practices who have maintained a decent credit rating during the pandemic. The first is the traditional SBA loan, and these can be secured or unsecured. There are also equipment finance products that are usually backed by exceptional equipment. There are term loans, which may or may not be secured, depending on the primary lender and credit profile. There are also cash flow based factoring products, these are usually unsecured and can usually be provided much faster than some of the SBA or term loan products provided by banks. And then there are also revolving lines of credit that come from bank or non-bank sources and come in a fairly wide range of shapes and sizes.
ME: How does factoring work?
BJ: There are different forms of factoring. But we generally do factoring based on cash flow. We take a look at the historical cash flow of the business and the credit profile of the business and the borrower. And we determine what their likely capacity is based on that cash flow to repay up front. We will advance money to them and buy a future debt from them based on that company’s expected cash flows in the future, which we determine by looking at their historical cash flows. There are other traditional factoring products where someone sells a product and has a receivable from the buyer. And that buyer can have a window of 30, 60, or 90 days to pay the manufacturer for that product. Banks will often take this claim into account by advancing them a certain percentage of the amount owed and charging an interest rate on it, then being paid directly by the buyer upon settlement of that payment. So these are two different examples of factoring products available for small businesses in the market.
ME: What will the lender typically look at when deciding to grant a loan?
BJ: It really depends on the type of loan we are talking about here. So I will first talk about the PPP, especially during the second draw. The first thing they’ll look for is your first draw DPI number. If you are applying for a PPP in the second round make sure you have this number on hand and then they will ask for your driver’s license to make sure you are who you say you are. And then they will look for documents that demonstrate the historical average monthly payroll. This includes pay stubs or payroll tax statements. It also includes bank statements which can prove and demonstrate your salary expenses. In addition to this, they will look for documents showing a 25% drop in revenue for a quarter of 2020 compared to the same quarter of 2019. This can include financial statements, bank statements, tax returns – income tax returns Quarterly are ideal, but annual tax returns can also be helpful.
Now, if you are looking for a bank loan, the applicant’s credit profile and the company’s credit profile are some of the first things a bank will look at. They will do you honor. If the loan is secured by assets, they will likely need to assess the collateral for that asset. And they will be looking for financial statements and tax returns. In general, a bank loan underwriting process can take from weeks to months to complete. And then there are a number of lenders and non-bank factors based on cash flow.
ME: When working with a private lender, does the borrower have to designate what the money can be used for? Or can it be used for any typical business expense?
BJ: When working with a private lender, in general, you understand what the needs of the business are and how the capital will be deployed. But as I like to say, at the end of the day money is fungible. And businesses have a wide variety of needs. Money can generally be used to meet these needs. Our most frequent customers use our money to finance growth; they see an opportunity at hand and they want to take advantage of it, and often that opportunity can be fleeting. They are looking for capital quickly to be able to do this.
ME: Are there typical interest rates and loan terms that a medical office will receive from a lender?
BJ: The rates really vary depending on the collateral requested for the term and the speed and ease of underwriting in addition to the position than the bond. Let’s go back to some of these products that we talked about earlier and explain where prices might come in for some of them. So, your traditional SBA loans, these can be both secured and unsecured, and usually carry variable rates. Currently, their price is usually in the middle to the high, and these loans will require personal collateral. When it comes to equipment finance products, these are backed by the equipment, usually have fixed rates, and are in the mid to mid teens, depending on the quality of your business. credit. And then your cash flow based factoring products that we talked about, these usually aren’t guaranteed, most don’t come with a personal guarantee, and the money can be received very quickly. And their prices are going to be a bit higher; they will probably start in the 20% range and increase from there. And then revolving lines of credit, from banks or non-bank lenders, the rates start in adolescence and go up from there. Personal guarantees are often required for these types of loans,
ME: In general, do lenders view medical practices as a fairly secure lending partner?
BJ: I would generally say that the more consistent and stable the cash flow of a business, the more predictable the business and the better the risk profile it is able to present during the underwriting process. The good thing about health care is that it is a critically important industry in the United States. It is of crucial importance to every person, every citizen, every resident of this country. It’s steadily increasing every year and it’s something that we all consume on a fairly regular basis.