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Dental Practices: Leverage PPP and ERC Changes to Boost Your Bottom Line

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Dental Practices: Leverage PPP and ERC Changes to Boost Your Bottom Line

The beginning of the new year is a time for change, and 2021 is no different. In January, Congress and the U.S. Small Business Administration (SBA) made new moves to better support businesses as they navigate the ongoing pandemic. The biggest changes they unveiled were related to two popular government relief programs: the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC).

Thanks to these changes, many more dental practices will be able to take advantage of the PPP and ERC programs. Is your practice one of them? Below, we answer some frequently asked questions (FAQs) your practice should review to determine whether you can incorporate PPP and ERC funding into your business plan this year.

What are Second Draw PPP Loans, and how can you benefit from them?

In early January, the SBA announced that it would be reopening its portal to accept new PPP loan applications from new borrowers and certain existing borrowers. To start, the portal was only available to community financial institutions to promote access to capital. Starting January 19, all borrowers were given access to the portal by the SBA.

Most practice owners who are considering these loans are looking at the Second Draw Loan program.

  • Second Draw PPP Loans: To be eligible, dental practices must have 300 or fewer employees, and they must have had a 25% reduction in gross receipts in any quarter in 2020 compared to the same quarter in 2019. Practices are also eligible if they previously received a First Draw PPP Loan and have used or will use the full amount.

For most practices, this decline in gross receipts would have been experienced in the second quarter of 2020 as compared to the same quarter of 2019. But what if you weren’t in business all of 2019? What then? The SBA provides these alternative periods to review:

  • If not in business during the first or second quarter of 2019: Gross receipts during the first, second, third or fourth quarter in 2020 that demonstrate not less than a 25% reduction from the gross receipts of the entity during the third or fourth quarter of 2019.
  • If not in business during the first, second, or third quarter of 2019:Gross receipts during the first, second, third or fourth quarter in 2020 that demonstrate not less than a 25% reduction from the gross receipts of the entity during the fourth quarter of 2019.
  • If not in business during 2019, but in operation as of February 15, 2020:Gross receipts during the second, third or fourth quarter in 2020 that demonstrate not less than a 25% reduction from the gross receipts of the entity during the first quarter of 2020.

Is your practice eligible for the Employee Retention Credit?

At the end of 2020, Congress passed the Consolidated Appropriations Act of 2021 (the Act), which included a host of new changes to COVID-19-related relief programs, including the ERC. The biggest change: businesses that received a PPP loan in the first round of distribution, or those that will seek a PPP loan in the second round of distribution, are now eligible to take the ERC.

PPP recipients can now file amended returns to claim the ERC for 2020 or claim the ERC in 2021. The Act also brought forth significant enhancements to the ERC for the new year, which will be a welcome change to dental practice owners.

Understanding the ERC basics

The ERC is a refundable federal payroll tax credit designed to encourage businesses to retain their employees through the pandemic. The credit can be claimed by businesses on their quarterly Form 941 (i.e., the Employer’s Quarterly Federal Tax Return), and a business’s total number of employees does not impact whether it can claim the credit.

When it comes to claiming the ERC, dental practice owners need to be mindful of “double-dipping.” Essentially, a practice may not double-benefit from claiming credits based on the same wages for the purposes of the ERC and the PPP; wages used in calculating paid sick and family leave credits under the Families First Coronavirus Response Act (FFCRA); and the Work Opportunity Tax Credit (WOTC).

Determining your dental practice’s eligibility

The ERC is available to any private-sector business that:

  • Was fully or partially suspended due to orders from the federal or state government limiting commerce, travel or group meetings due to COVID-19; or
  • Experienced a significant decline in gross receipts during any quarter. For 2021, gross receipts need to have declined by at least 20% of what they were for the same calendar quarter in 2019 for the business to be eligible for the ERC. For 2020, the revenue decline was required to be 50% or greater for the same calendar quarter in 2019.

The fully or partially suspended standard is where most practice owners have focused their eligibility.

Defining suspension under the ERC

How exactly do the rules define a “full” or “partial” suspension? A business is deemed to be fully or partially suspended if an appropriate government authority imposed restrictions on the business’s operations so that:

  • The business had to cease all operations, or
  • The business was still able to continue to operate with some, but not all, of its normal operations.

In addition, more than a “nominal portion” of the business’s operations need to have been suspended by a government order for it to be considered in these categories. For “essential businesses,” the suspension also must have had an impact on key supplier, patient or customer relationships.

For the purposes of evaluating suspension, government orders include:

  • An order from a city’s mayor stating that all nonessential businesses must close for a specific period;
  • An emergency proclamation that residents must shelter in place, excluding employees of essential businesses;
  • An order imposing a curfew on residents affecting the operating hours of a trade or business; or
  • An order mandating a workplace closure for cleaning and disinfecting.

What other changes should your dental practice be aware of?

Under the new guidance, loan forgiveness has also been expanded to include several new business expenses.

Under the prior PPP guidance, nonpayroll expenses that were eligible for forgiveness included payroll, mortgage interest, rent and utilities. Now, under the newly expanded guidance, nonpayroll expenses also include operations expenditures, property damage costs, supplier costs and worker protection expenditures.

There are also changes to the COVID-19 Economic Injury Disaster Loan (EIDL) program. Under the prior guidance, EIDL advance funds reduced loan forgiveness dollar for dollar; under the current guidance, EIDL advances no longer have an impact on loan forgiveness.

The SBA is also providing a simplified loan forgiveness application for loans of $150,000 or less. The application will include:

  • A description of the number of employees the eligible recipient was able to retain because of the covered loan;
  • The estimated amount of the covered loan spent by the eligible recipient on payroll costs; and
  • The total loan value.

The bottom line

It is reassuring to see more opportunities for dental practice owners and other businesses to get some relief in the wake of the pandemic. However, the guidelines governing these programs can be complex. That’s why it’s important to partner with a trusted, professional team that can help you navigate the application processes and ensure you have a strategy that allows you to make the most of your funds.

At Aprio, we have established a dedicated PPP and ERC team that is solely focused on helping businesses like yours navigate these government programs and use the funds to strengthen their balance sheets. We also have deep, industry-specific experience working with growth-focused dental practices of all sizes.

If your dental practice needs a professional partner, and you would like to learn more about how Aprio can help, please contact us here.

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