COVID Financial Plan for Dentists

Hi everybody. Wanted to do a quick update to our, our 10 step plan for helping dentists survive and overcome this period, the strange period in the CORONA era. As you know, I've done a few iterations of the practice CFO 10 step program for dentists and really, really doctors as well. We have a few non dentists as well that this might relate to also. And a lot has happened over the past, I think week and a half, two weeks since I did the last iteration. Let me tell you, right now we are in the heart of a lot of traffic. We're just in the middle of it because Congress has now approved a fourth legislation around the coronavirus and this one is to restock the PPP program as well as the eidl, the economic injury disaster loan program. And there is definitely a sense of urgency that doctors should be feeling right now, particularly if they have not applied for the PPP loan. So I'm going to talk about that. I'm going to talk about what to do in applying, what to do if you're not getting any contact from your banks, what some other options are. And then I want to also talk about forgiveness. A number of our clients are starting to see the PPP money landing in their account as well as some economic injury disaster loans. Many have already received the grant which is an advance against that economic injury disaster loan, up to $10,000, $1,000 per employee. And I want to talk about the priority order of using this stimulus, these funds from the government. And let me just make sure I'm sharing the right screen here. I believe I am.

Actually I'm not. So let me just share. Hold on. There we go.

Okay, great. Well, as you know, first page here, I'm not going to go through all the pages. I'm actually only going to touch on those steps that relate to where we are right now with dentists and the new bill that has come out. So there's really two or three steps I'm going to touch on. Practice CFO helps doctors thrive financially. We work with largely dentists, almost exclusively dentists, to help them accelerate the day that they're financially independent. And we do so by integrating all of the elements or modules of their financial life into one cohesive plan, both personally and within the business. Specific specifically we do CPA work, tax and accounting, oversee payroll. But importantly and really why we exist is we use the data that comes out of the CPA work as our X ray to then do good business and personal financial planning for our Doctors. Here's our five CFOs as we call them, chief financial officers, who all have.

A pool of clients that they work with on a daily basis. Okay, so this is updated as of today, April 24, it's Friday. And I'm going to skip all of these steps that should have already been done. Number one, determining the amount of cash you need to get through this period. Number two, applying for the Economic Injury Disaster Loan and the grant that comes with that. And let me talk really quickly. That of this stimulus that just came out, there was 50 billion that is pegged for the Economic injury disaster loan, there is 10 billion that is pegged for the Economic Injury Disaster Grant, which is formally an advance against that loan. And then there's 310 billion, which is pegged for a restocking of of the Paychecks Protection Program, which is the SBA 7A loan available right now to businesses who have suffered an economic challenge because of the mandated government shutdown on the coronavirus.

Most of you have been receiving the grant, some of you have been receiving the loan, or at least the ability to choose the amount of the loan. You should have received an email from the SBA that allows you to kind of log in. It's a very simple interface. It shows you the amount of loan you're eligible for. And I'm finding that in many cases it's been astronomically high, up to $500,000 for dental practice doing, say, a million dollars, $1.2 million. No wonder why this money ran out so fast. Others, it's only at 15,000, and I don't see any rhyme or reason why. I think it depends on when you filed, when it got into their queue, and what the sba, how much funds were still available at that time, and they probably became less and less generous as they saw the funds get evaporated so quickly. But ideally, you have that. Let me talk really quickly about what is the priority order of using the different stimulus here that you have and you got the grant. These are the options. You may not actually have it.

But I would say if you haven't received it, with this new stimulus coming out, there's a good chance that you will get an email or you'll see the money land in your account. The EID grant, it just lands in your account. There's no email, there's no phone call, nothing. It just lands in your account. So be sure to be looking at your bank account. It's the account routing number that you would have put in when you applied for the loan using their new online system that Came available there at the end of March on a Sunday night. I remember.

And so the fir the you have these different pools. What I would recommend is, is this, let's assume for a second that you get all three of these. You got the grant. You're probably already using the grant as we go. It landed in your account. And by the way, I don't recommend for any practice CFO clients you to set up a brand new account for any of this. We have real detailed accounting records. We're creating the tools to extract the data. We'll be able to use that to give it to the bank when we, we apply for loan forgiveness. So don't go set up a new account if you don't have really good accounting. Perhaps you can go do that just to help you be able to provide evidence of how the money was expended. Okay, so let's assume you've got all of these.

Options, the three of them. What's the priority order of using them? Well, go ahead and use the grant. It can't be used for paying off old debt. It can't be used for expanding your practice or buying new equipment. This has to be used for your working capital needs. That's going to be your labor, your lab supplies, your facility, your marketing, and your admin expenses. Same thing applies with the Eid loan. Now, the Eid loan has excellent terms at 3.75% up to 30 years. It's, I'm sure, tempting for, for some of you to want to use that to go pay off some other loan. They have a practice loan, equipment loan. Heck, take it out of your practice and pay off a student loan. Can't do that. Can't do that. Needs to be used just for working capital needs. It's probably okay to pay off a credit card balance. I'm going to assume that's okay. There's nothing stated about that. But your credit card is the balance of money used to pay for working capital needs. And so therefore, if you got a large credit card balance, especially one that spiked because of office closures, you could go ahead and probably pay that off. I think that would be okay. And then much better to have a 3.75% interest rate over 30 years than to have your credit card interest rate. No doubt about that. However, this is a loan other than the grant. This is a loan EID loan, it can't be forgiven. So this is a loan. It's going to go on your balance sheet and then that's going to have all the drawbacks of any Other loan on your balance sheet, meaning if you try to go refinance your practice debt or you want to have do an equity cash out of your practice or whatever, now you have another debt on your balance sheet and we don't want more debt just for more debt. I wouldn't be opposed to setting aside some of that to rebuild your working capital, which should be probably around 75% to 100% of your annual out. I mean your monthly cash outflow in your practice. So if your monthly cash outflow in your practice is let's say $60,000 and that covers everything going out the door, then probably not a bad idea to park $60,000 of the EID loan in your practice. So you've got that cushion. So when the doors open back up, you, you're not riding at ground zero on your cash. You've got some cash to help you sleep at night. And yeah, you'll pay that loan off over time. It's going to be $60,000 at 3.75% over 30 years. That is going to be a tiny loan to pay off. So not a bad idea to do that. However, beyond that, let's not take out more loan than you need or at least pay it back once we get through this. Once you get to the PPP loan now you've got money that's potentially forgivable if you play your cards right. And that's going to be really valuable source of funds. So we want to use the PPP loan money first and the EIDL grant first. Then we sort of use this backup valve known as the EID loan, assuming you got that loan. And then beyond that, you may need to request a line of credit from your bank. Perhaps you could ask for an equity cash out loan. That's where you have equity in your practice, just like you might in your house. And the bank will come and they'll issue you a loan or refinance your current loan and put some cash in your bank, just like a HELOC on your house to get you through it. Problem is, right now most banks are are entirely consumed dealing with ppp. There's almost no banks doing lending right now or doing refinancing right now. Perhaps there's a few. We had one client, I'm aware who was working with a bank called Endeavor, and they actually refinanced a loan right now. But most banks.

It just ain't happening right now. So then what's your next alternative? The next alternative would be to use personal funds. If you have a Personal rainy day fund. Well, this is a rainy day, so you may want to pull that money out. We can restock that later through a methodical plan and then last resort. To me, this is the ultimately last resort is pulling money from your retirement plan. The CARES act allows you to do that right now and not have to pay the 10% penalty. They also allow you to borrow more than normally you'd be able to borrow, which is up to 50,000, potentially up to 50,000. Now it's up to 100,000. So that's another valve. But given the market is still down substantially and right now is actually the time to be putting money in, if you can, you'll be thankful for later is my projection. I do not recommend pulling that money out unless you just absolutely have to because you've got no other option to go with. So let's, let's carry on. So step two is apply for the economic injury disaster loan. Decide what to do with each employee. We're probably long past that at this point. One thing I do want to state is.

Some of you are trying to get your staff back probably pretty soon. And your staff are feeling pretty comfortable right now because a lot of them are getting here in California at least over a thousand dollars a week for doing absolutely nothing. And that's a proposition that you have to compete with right now. Some may say that they have to stay home because they're sick, watching over somebody with COVID or maybe they have Covid in cells or their kids are in school, are out of school because of COVID And I had mentioned in a previous webinar that when your office is closed, you don't have to pay that, and that's on the website of the Department of Labor, that if you don't have the economic ability to pay or your office is closed, you don't have to pay that. However, when you are back in to the office and your doors are open and you're saying, hey staff, I need you back. I got patients coming in, I need you back. And at that point they can't because they're watching kids who are out of school, then you do need to pay them for up to 10 weeks of emergency family leave or at least up until summer would start or their daycare reopens or whatnot, then they don't have an excuse. But you would have to pay that. And if you do, there is a dollar for dollar credit against your FICA taxes that you'll have to work with your payroll company. If you're a client of Practice cfo. We're going to take care of that for you and work directly with the payroll company and fill out the form so that you get that credit.

For those employees. A few of you had ended up paying your staff some sick pay just to sort of help them out as you wanted to. And if you pay that after April 1, you can get that credit for that as well. But anything you pay to your staff before the point when you receive the Paychecks Protection Loan will not apply toward the Paychecks Protection Program loan forgiveness requirements. FYI, it's only the payroll that starts after you receive that money, which I'm going to explain here in a second.

Step number four, conserve your cash. Won't go over that. Just review the prior 10 step recording around loans and rent and other things. And this still very applicable right now because offices are not opening up yet. Some states I'm finding it's early May, others it's mid to late May.

A lot of them, most of them we don't know yet. Actually at this point, a lot of that is forecasting.

But what you can be doing during this period of time is to be very proactive in reaching out with your staff. And really what I meant to say there is reaching out to your patients and letting them know, hey, it's almost go time. We were scheduled. Let's get you back on the books. How you doing? How's that tooth? And really be creating goodwill and connection with your patients. Okay? All right, now to the big changes. Step six, applying for the SBA 7 app loan in my earliest 10 step, which was about a month ago, it was. Let's go ahead and try to time this better. Let's hold off a little bit until you're about to reopen doors because the loan forgiveness is dependent on you rehiring your staff. And you can't rehire your staff if you don't open up doors unless you want to pay them to be at home. Let's talk about that for a sec. If you got the ppp, let's say you get it today, but you still got three weeks or so before you can open doors. Should you put your staff back on payroll? There's definitely differences of opinion on this, but let me just explain what happens if you put them back on payroll. They no longer receive unemployment income. And a lot of your staff, some of your staff, I should say, are probably getting paid as much, if not more by being on unemployment income than they might be with you. Now, that's unlikely for hygienists and of course associates, but your assistants in your front office, that very well could be the case. And some of your staff are not going to want to be put back on payroll. I've already had a few clients talk with their staff about it. And that was a lot of the consensus is they simply didn't want to be put back on payroll. And they know that they get this extra stimulus of unemployment income through the end of July. So you might be in a little bit of a tug of war to get them back. And any staff who says, I can't come back for xyz, and you know it's not true, you should really question whether that staff is loyal and committed to your practice. Most of you have good, loyal, committed people, but that sure would be a cause for concern for me.

And you can terminate people at this time just from economic hardship. You don't need any reason. California, you don't need any reason anyway. But there's always the possibility of.

A wrongful termination. Right now it's probably get out of jail free card in that regard. And that you just can sort of say, economically, I can't bring you back anyways. That's getting off topic here. Here's my new advice. Now, my new advice is so you apply for this ppo. Let me finish up that conversation. I apologize. I typically am recommending to not put them back on payroll until your doors are open and they're actually in the office working. Now, if they're at home and they're billing or they're scheduling or they can be doing something really productive for the practice, great, put them back on payroll right away. No, do not wait on that and make that a priority. However, the rest, your hygienist, your assistant, most likely bring them back when you're able to open your doors. Even if your chairs aren't full, still bring them back when you're able to open your doors. You might as well because the government's going to pay for it by getting an increased loan forgiveness by bringing them all back.

So if you have not applied for the PPP loan because you are still going off my advice from a month ago or other people's advice to wait to time it better when you open doors, stop, apply now. The original $349 billion went in 13 days. This is probably going to go in about four or five days. The reason why is these banks have tens of thousands of applications already in and probably already going to soak up most of this new stimulus if you're not in line. So here's what I recommend. Apply with your bank right away. The banks are finally getting. Not finally. Banks have done a great job on this. I've been very impressed with a lot of the banks, but they've got their systems in place now to handle this. So apply right away. You might need your cpa. The application's a little bit of a bear. If you're a client of practice cfo, you know, we're filing this for you, most likely, and our whole team has been dedicated to that this past week, week and a half. That's all we're doing. Our accounting team is applying for those. We CFOs are reviewing it, and then we're working with bankers on this. And it needs to be a team effort between you and us to make this happen. If you're not a client of practice CFO and you haven't applied, you need to apply and apply today. Apply like as soon as you're done listening to me talk here. And then once you're in the queue, you're going to need various documents from your CPA, your payroll, some payroll reports, 941 is most likely some other things, then.

Apply. Keeping in mind, this is 2.5 times your average monthly payroll. So if your average monthly payroll, which includes you and your spouse, if your spouse on payroll and kids, kids are on payroll, take all of that. Let's say that's 30,000 bucks times two and a half. That's going to be. What is that, $75,000 of potentially free money. That could really help you right now. Trust me, you want this. It's much more valuable than the economic injury disaster loan, which you have to pay that back.

So once you apply with the bank, here's a really important comment is to the extent you can make sure that a human being is aware of your application, the higher the chance, significantly higher of you getting approved. So if you have somebody that you're working with directly at your bank, say, hey, I submitted my application. It's in. Can you verify you received it? Is there anything else you need? Great. Next day, is there anything you need? What's the status? Next day, is there anything you need? What's the status? You need to be the loudest, squeakiest wheel right now? Because the amount of applications are not all going to be accepted, especially if you're just applying right now. You're in the back of the line. So you get. You got to be really outspoken here. If you just can't get a hold of your bank or don't think Your bank is going to be able to do it. There are some good online, what are called fintech companies, financial technology companies who are payroll payment processors and things like that. Intuit is one, I believe you have to be using QuickBooks, payroll, intuit payroll to process through them. And I have the websites right here. And I'm going to post this as a PDF on our website as soon as we're done. I'm a little bit random in the way I'm going about this because this is very much off the cuff. This webinar decided to do it literally like 10 minutes before starting here. But if you go to our website, www.practicecfo.com.

Why is the Internet not working?

Here we go, practicecfo.com if you click up here on our resources and you go down to Covid Resource center for dentists, you have the accumulation of everything we've been putting together over the past month or so for our doctors. And we have sort of important notices. We have our top questions right here. I might be a little out of date at this point. We have links right here to these online companies that you can apply with. You don't need to have an account with them. They're just processing. We have Cross Rivers bank, we have Lendio. Divi. Divi's closed right now.

Funding circle, smart biz. The ones that I'm finding more recently are these ones good options. Intuit. You could click on this link using our PDF, PayPal, Cross Rivers bank and Lendio.

All of these right now, I believe are taking applications.

And especially now some were waiting until the funding was approved, which is now approved. So they're all taking applications and you can apply through them. It would be a really good option. Coming back to our resource center, we have also some alerts and things like that. All of our 10 step is down here as well. Some commentary from me on the markets, we're investment advisors as well and how we're recommending clients.

Approach their emotions to the market fluctuation and so forth. So a lot of good stuff on here. We will have this posted there also on our blog. Click on latest news and blog. This is where we're posting almost every day or every other day. Perhaps our most recent commentary on what dentists should be doing with these different stimulus package loans. So I'll be posting this as well as a blog post once I'm. Once I'm done here. So coming back, coming back to our 10 step, step six, apply. If you haven't applied, apply now. Then I'm going To skip the prior information and step seven still is applicable. As soon as you receive these proceeds, make sure you re engaged your team at full or as much as you can until you can reopen and re engage them at full. Step 8 is a calculation of the loan forgiveness. Now, I explained all of this previously and it still all applies, but here's some updates to the forgiveness. We are now at the point where doctors are receiving the PPP money, which is great. So our minds are starting to pivot a lot to what do we do now to ensure the highest likelihood of forgiveness on this loan and the highest amount of forgiveness on this loan. And so let me explain this. My first comment I want to state is that this is an unusual situation. Normally when you owe money to the government, like you do with this PPP loan, technically it's a loan from the government. Normally when you owe money to the government, that is taxes, there is a battle. You want to pay less taxes and the government wants you to pay more taxes, specifically the irs. And so you will toe the line. Ideally, you're not crossing the line, but there's this tug of war that takes place and you're at odds with the IRS in this case. You're not necessarily at odds with the US Treasury, Congress and the SBA in wanting this money forgiven. They want this money to be used to get the cogs of the economy turning again. And of course, rehiring your staff to make that happen. That's what they want. So you are on the side of the, of the government. You're on the side of, of also the banks. The banks, I don't believe, want this on their books. This is a 1% loan, and it uses up their lending cash. They're allowed to lend out certain amounts. And this, this I believe, is using that up. And so banks don't really want this on their books. They're, they're happy to have this money forgiven. They're doing this a little bit out of, well, compulsion and also client service as well. And so everybody wants this money forgiven. So if there's any ambiguity, which there is a significant amount of ambiguity, then let's interpret this in the favor of you, the borrower. I'm not telling you to be dishonest. Let me state that I'm not telling you to be dishonest, but I am telling you where there is gray to very much toe the line on this. And there is quite a bit of gray. I expect that there will be some further clarification from the Treasury. They do these.

Updates These Q and A to answer questions that everybody has. They're doing it once every couple weeks about right now. I suspect we'll have some more of that now that we're into.

Forgiveness territory, the eight week period that starts when you receive the money. So some of what I might say here, let me just caveat it by saying it could be very, very much be overridden by clarifications that the US treasury and the SBA make on the forgiveness. So let me go through what I understand it to be.

Admitting that I may have a misinterpretation perhaps and that other people may interpret this differently. But let me explain how I interpret this. So for our clients, practice CFO as a tool that's going to help maximize forgiveness. I'm already meeting with clients, all of our CFOs are starting to meet with clients and we're going to use it to project out sort of your staff costs, your other qualified expense costs. And we're going to figure out how do we get as much money or as much of this loan on your qualified expenses as possible so you don't have to pay it back. And there's definitely some tips and tricks I think to do that effectively. So.

The catch 22 is that most of you are supposed to put your staff back on payroll but you can't yet. And typically, as I mentioned, we don't recommend you place your at home staff on payroll until they're able to perform their duties. We'd rather you pay back the any unused PPP loan than pay your staff because they're already getting paid the loan. Forgiveness is reduced by the following four factors. Factor number one is what I'm going to call the FTE factor and FTE stands for full time equivalent. Now I explained this previously in real detail with examples on prior 10 step explanations, so I won't go into the examples. But there's a couple things here and I'm just going to read this. You must re engage your employees such that your average full time equivalent or fte. That's simply the amount of staff you have that are working full time. If you have two part timers that would equal one full time equivalent. In a nutshell, after you receive the loan.

Is that wait. You must re engage your employees such that your average FTE after you receive the loan is as high as your 2019 average FTE. If you weren't in business 2019, you can use January 1st to February 28th. There is some ambiguity around this. Many have assumed the average is to be determined over the full eight weeks. The CARES act specifically states the average number of full time equivalent employees shall be determined by calculating the average number of full time equivalent employees for each pay period falling within a month. There's definitely different ways to interpret that. If you take it at very face value, you could say well, in a month and the eight weeks is over two months, a little bit less than two months, but it's over eight weeks. So possibly you could use the month that is the second month or the second.

Portion of the eight week period. It's probably a little bit aggressive there, but additionally, the U.S. treasury guidance says you have until June 30, 2020 to restore your full time employment and salary levels for changes made between February 15, 2020 and and April 26, 2020, which is when pretty much you saw all your salary levels drop. So they're saying you have until April 30th to get them back up.

If there are different angles of interpretation, take the one that favors you, the borrower. In this case, we recommend using the average FTE during the second month of the eight week period. You'll likely have your staff back at that time. Also note, if you hire brand new staff, they will count toward your fte. You are not required to bring back every individual team member. The forgiveness just requires that you restore your FTE as a numerical figure for any staff that you put back. Factor number three, which I'll get into down here, applies.

And so again, there could definitely be changes in this interpretation with more clarification. And again, I admit that's probably an aggressive approach and you may have advisors telling you otherwise.

I think oversight on this and audits will be next to none because again, everybody sort of wants this used for the right purposes and therefore forgiven. And also I think there's much bigger loans than what you as a dentist are going to get that if they were audited, probably would be audited. Again, not an invitation for anyone to be dishonest, but definitely an invitation to capitalize on gray areas. All right, factor number two, at least 75% of the loan must be used for payroll costs to obtain payroll forgiveness. So let's say you're able to get everybody's headcount back up. So the number of people you had in terms of FTE after is equal to before. That quotient is 1:1 over 1, 100%. Second order is to apply 75% of the loan on your payroll costs. And payroll costs is defined in the CARES act and I have that up above here. But it's going to be your direct costs, it's going to be any pension that you pay. Any 401k employer paid 401k for you and your team if you're a sole proprietor. Unfortunately not for you. From what I understand in the law, sole proprietors get the short end of the stick here a bit. All of our clients are S corps and we always get you to be an S corp pretty much right away for various reasons. But this is one area where it comes in helpful. So your direct payroll costs, any 401k employer paid defined benefit plan. For those of you that have defined benefit plan, we have said.

No in calculating the amount of the loan because if you have a defined benefit plan, you may be stuffing two, three hundred thousand dollars in that and it's almost all going to the doctor. So I think that's just too aggressive for our comfort. Even though in the forgiveness calculations, the.

Treasury specifically states in one of their Q and A that any amount paid toward the defined benefit plan counts as a qualified payroll cost to meet our 75% here. If we take that at face value then, and you're funding $200,000 in a defined benefit plan, you could potentially pay all of that during the eight weeks and have most of your 75% covered. That's definitely aggressive. What the law states is that you can include, I think it's.

Costs incurred and payments made. So costs incurred, really that is when you incur them, not when you pay them. So from that definition you can't accelerate a 401 employer contribution into those two months or a DB, but then it says and payments made. So again, this is an area where it's not quite clear which one makes sense because you're clearly making the payment if you go put $150,000 in your defined benefit plan or if you go put $60,000 in your safe harbor profit share for your 401k. And so unless we hear other guidance that prevents us from doing so, practice CFO intends to, at least on the 401k side, accelerate the payments for the year for 2020 into that eight week period. That's definitely our intent. We'll see if there's any clarification on that because that's big. Health insurance benefits paid for by the employee. Also employer also is counted toward the payroll costs. Can you accelerate that?

I guess the same comment applies. I think so, because it says payments made. But that would definitely be an aggressive approach and could be limited. Big thing that I don't know is the banks are going to have applications that you have to fill out to get forgiveness and the banks are not required to validate your numbers. Now a lot of them are doing it right now. They're asking for your 941s and they're looking at it and doing, doing that just for their own due diligence. But the SBA specifically said that the banks, although they have to sort of see the documents and I assume make sure it's reasonable, they're not required to verify or do due diligence on your numbers. And I think the same is going to apply too with the loan forgiveness as well. That could change. But that's the understanding I have right now based on the language of the law and the clarification on it.

And so.

So cost and cured and payments made. Could you accelerate your health insurance possibly to do that also? What else could we fit in there? Okay. When it comes to your staff costs.

You could accelerate certain things that you pay them later in the year. For example, if you pay them a Christmas bonus to say, hey staff, you're not getting a Christmas bonus this year, but you're getting a summer bonus, I'm going to pay that for you right now. How much? You could prepay your staff. Could you prepay your staff in that last week of the eight week period for the next month or month and a half, maybe. I've heard of one attorney who said that's something that can be done, but each state has their own labor laws and I don't know the answer to that. So I would say consult with a labor law attorney. I don't see perhaps any reason why not. But here's what you definitely should do is define the last day of your eight week period. The last day. And then if you have a payroll that's going to be going out within a week or so of that, at least take that one and make sure it's paid by the end of the eight weeks. Squeeze as much as you can in there. Also, if you have a payroll that's going to go out, say at the end of this month and you don't think you're going to receive your PPP until April 1st, see if it's okay with your staff if you just extend the payroll period just for this one time into after receiving the PPP loan. Again, I'm not a labor law attorney. Recommend you talk with the labor law attorney to confirm some of this. I'm just thinking about it analytically.

As a financial advisor. So we need to cram as much as we can within that, let me see here. So that is number two is at least 75% needs to be used for your payroll costs as we just defined them. Now at a minimum, even while your office is closed, make sure you, the doctor and your spouse and if your children were on payroll, are all on payroll right away. And for you, the doctor, don't pay yourself any more than $16,666 during those eight weeks because that's the cap. It's $8,333 per month because times 12, that's $100,000 and you can't include more than $100,000 pro rata for those eight weeks to apply toward the 75%. If your wife is on, or husband or spouse is on a lower payroll level, you're, you could definitely bump them up. Not a bad idea. Kids, I know for our clients we're not going to pay our kids any more than the standard deduction of $12,400 so they don't have to file a federal tax return and are in the 0% tax bracket. We're not going to bump them up above that. But we will accelerate that to be paid within the eight week period. If their kids are old enough and they actually have some responsibility that they can do, of course. So that's one of the first things you want to do. Then we get down to I'm going to skip number three and I'm going to come back to it. Step number four is that the portion of the loan not used for payroll must be used for interest on pre existing debt, rent and utilities. No more than 25% of the loan can be used on those things. So a lot of you have your loans that are on deferment. I think once you get this, get off deferment, start paying it or at least pay the interest portion with your bank so we can count that as forgivable money with your suppliers. If you have equipment loans, any, you know, any, any other loan that's on deferral, probably a good time to resume that. And if you got the EID loan, I would say resume it completely, not even just the interest, but the principal as well. You might as well because you got this backup valve known as the EID loan, you should be okay on cash for sure. Rent, stop deferring any rent. If you got that, we want to include that or utilities as well. Be paying all of that. Now if you have an arrangement where you own your building, I would probably up your rent, maybe double it during those two Those two months or if you have that type of relationship with your landlord, you could possibly pay ahead of time or at least pay back any deferment you had before you got the PPP money. And again, more law might come out on the saying that you can't accelerate certain things or anything, I don't know. But as of right now, it doesn't say anything about that. So I'd recommend you do that. So calculate what's 25% of my loan? If your loan is $100,000 for the PPP, 25,000, try to at least bundle $25,000 of those different expenses on loans, interest on pre existing loans, your rent and your utilities into that eight week period. Okay, let me come back to factor number three. This is the last one relating to payroll. You must, and there's been some debate whether this is still applicable or not, and I don't know, I think it is, you must not give a reduction in total pay of more than 25% to any specific employee that you bring back on. Again, you don't have to bring them back on, but if you do, you don't want to pay them less than 25%. But here's the confusing thing. As I read it, the act says to compare the total pay during the eight week cover period with the prior full quarter during which the employee was employed before the covered period. So before really Covid went down, what was the full quarter? I believe that's Q4 of 2019. So they're saying you want to compare the two month or the eight week period.

With the which is the COVID period with the three months in Q4, 2019. To me that makes no sense. Of course there's going to be a pay reduction when you're comparing three months before with only eight weeks after. So maybe I'm missing something in the law and our CFO advisors here we meet twice a week to talk about what we're doing and working with our clients and our interpretation. But that's struggling a little bit with that one.

So what do I say? Given the language elsewhere and mentioned up above in b about the one month comment and restoring your staff by June 30th, we intend to use the second half of the eight week period multiplied by three to have an apples to apples comparison. Clearly that's in our favor. That's in the favor of the borrower to do that. I get that and clearly it's aggressive.

I don't know if this will hold up in the long run, but I'm trying to make this make sense in a way so that you can compare two periods of the same period of time and say, did we bring back our team or did we not bring back, or did we end up paying them, in this case pay each staff member that we brought back roughly an equivalent amount as what we paid during that period. They're not saying, are you paying them the same hourly rate? They're not saying that. They're saying, did you pay them in total the same amount of wages? And if it's less than 75% in the before period, then whatever that difference is ends up being a reduction on the forgiveness of your PPP loan. Now, the banks are going to have their own applications. I don't think I mentioned this, but the banks are going to have their own applications. And I don't know if they're going to figure out how to use a global, global one, or the US treasury comes out with a sample like they did on the application, a sample forgiveness application. I suspect they will. And at that point, I don't know how they're going to take the law and bake it into that application in the way that this forgiveness calculation actually works. I don't think anybody does. Now, there's calculators out there and different banks have this and that, and they have some variations among them. Some people are really confident here. Truth is, I just think there's a lot of ambiguity around it and either it'll be clarified later or the banks may dictate that when we get there. So there are no guarantees, and I'm not giving any guarantees that these strategies ultimately are going to work two months from now when you're applying for loan forgiveness.

But I sure think we should start with a plan is what I'm recommending and what we're doing with our clients. If anything doesn't work, it doesn't work. But if it does work, at least we're doing it. That's the way I'm looking at it. All right. And factor number five is the loan will be reduced by the amount of the EID grant. That's the grant up to $10,000, $1,000 per employee that was received. Nope, not the EID loan. It's totally unrelated, just the EID grant. And it's not entirely clear, but we believe the FTE test, which is test one must, or in my analysis here, the factor one will be applied first, then a reduction will be made for the remainder. Below is an example. This really simple example is $100,000 loan. You brought back 95% of your staff as a headcount as a numerical figure in the FTE ratio. So the forgivable amount, potentially forgivable amount is 94,000. Then you apply factors 2, 3, 4 and course EID loan or grant there and 5 and we had some limitations because we didn't use 75% of it for payroll costs. We had some limitations because we didn't use the full hundred thousand toward the combination of payroll and other qualifying expenses, interest, rent and utilities. And then.

Oh wait, this 3750, that's you brought some people back but you didn't pay them 75% of their pay. So we have a reduction there and then a reduction for not using that extra 25% on qualifying expenses and of course the EID grant. So in this case the projected loan forgiveness is $74,000 and the remaining loan over two years with a six month deferral at 1% is $26,000. I suspect you could use the EID loan to pay that back if you got money sitting in your eid. The bill even stated that if your EID loan was finalized by some date, I think it was April 3rd, it had to be refinanced into the PPP loan. So I suspect that would be totally fine to pay this off using the EID loan. And then keep in mind we don't know what the banks are going to request. I mentioned that. And there is a consolation price if you don't get the PPP. There is an employee retention credit starting in Q2 2020 and it's equal to 50% of eligible employee wages by the employer in 2020. Calendar quarter credit is subject to an overall wage cap of 10,000. So basically you could end up getting a reduction in paying your FICA tax. That's Social Security, Medicare of up to $5,000 per employee. So if you have eight employees, you know there's $40,000 that you don't have to pay FICA taxes if that's the amount that you would end up having to pay in 2020, which might be hard to get that much within the 2020 calendar year. But point is is that there's still some benefit if you don't get the PPP. Step nine, file your tax term by June, July 15. Still applicable. Step 10, build your financial walls back up. So that's the summary of the key points. I had some other notes here. Let me make sure I covered everything there that I wanted to cover.

Yep, that's everything. I'm sure after listening to this many of you have a thousand questions. We're going to be putting on a webinar where the webinar pretty much is going to be just Q and A. And we'll have some of our CFO advisors here on that webinar and we'll all be trying to answer questions. Stay tuned. Keep looking at our resource center here on our website, resources Covid resources for an announcement on that. And hopefully you're getting through this and some of this has been helpful for you.