On today’s episode of the Millionaire Dentist podcast, Casey Hiers and Brogan Baxter of Four Quadrants Advisory discuss the Economic Injury Disaster Loan, better know as EIDL and share some do’s and don’ts that practice owners need to be aware of moving forward.
Announcer:
Hello, everyone. Welcome to the Millionaire Dentist podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances and business practices to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue and may not be safe for work.
Casey Hiers:
Hello and welcome. This is Casey Hiers and I have our COO Brogan Baxter back in studio today to talk about the Economic Injury Disaster Loan, better known as EIDL. This type of loan for small businesses who were impacted by the coronavirus pandemic does come with restrictions that may catch some practice owners by surprise. Loans made through the Economic Injury Disaster Loan program, which was recently expanded by lawmakers by about 60 billion, carry terms that may cause business owners to inadvertently default on their loan in the future. And in the mad scramble to access federal funds, keep their businesses afloat, entrepreneurs and practice owners who have been approved for EIDL program may have not carefully reviewed the provisions. With that set up Brogan, what does this EIDL loan mean in layman's terms for our listeners?
Brogan Baxter:
Yeah. Well, thanks for the intro and all that information to start with. There's a lot there.
Casey Hiers:
Quite a mouthful.
Brogan Baxter:
Quite a mouthful. And so just for simplicity, let's just call it the EIDL loan for simplicity moving forward. We don't have to worry about the alphabet soup like we have with the PPP, the EIDL, the FFCRA, the CARES Act, all those things. The EIDL loan's actually pretty unique. It's different. And it's really meant to help dentists when it comes to working capital. See, everything else that had been passed before now had really had only been attributed to specific parts. You could only use it for this, you could only use it for that. The good part when it comes to the EIDL is that can be used for just what they call working capital. Sure, there's some restrictions on it here and there. But generally speaking, this is just kind of a little bit of a slush fund, so to speak.
Casey Hiers:
I saw something where if somebody wanted to replace all of the windows in their business, that this money could be used for that, is that accurate? Is that what you mean by working capital? Or what's the bandwidth of working capital, of what you can spend it on?
Brogan Baxter:
Absolutely. It's when it comes to working capital, it's actually better just talk about the things you really can't use it on than it is the things you can. There are a few restrictions when it comes to the EIDL. One, they don't want you to use these funds to go through and refinance debt you already have. That would defeat the whole purpose of it. You're basically just turning the SBA into a bank. And that's really not the intent of the funds. It also cannot be used to expand. Now, what is the definition of expansion? Well, that's kind of open to interpretation. I would say, blowing out a wall, adding some operatories to your practice or your building would be deemed expansion, but what about a piece of equipment? What if you're replacing a piece of equipment? There's some other, or marketing, do those things count?
Brogan Baxter:
Something else you really can't use it on is anything that's covered by the PPP. Now that doesn't mean you can't use it on payroll. It does mean you have to use the PPP funds first before you use these funds for that. You basically, the rule there is you can't double dip.
Casey Hiers:
That makes sense. Brogan, When we talk about the structuring of this EIDL loan, can you touch on that a little bit and help us understand that?
Brogan Baxter:
Yeah, sure. Anyone that had went through the PPP loan process, there's probably smoother run programs, but that's what happens when things kind of get thrown together last second, but desperate times call for desperate measures. This is different. The PPPs were offered through banks. The EIDL loan is actually offered through the SBA. Everybody might remember way back upon when, when all this stuff started happening, there was this opportunity you had, you could go on this website, you could fill out this real simple form and apply for a $10,000 grant. Well, that $10,000 grant was part of the EIDL program. A lot of dentists really just kind of got confused and just, hey, we need 10 grand. It's 10 grand, essentially no strings attached, let's just apply for it. And so everybody did that.
Brogan Baxter:
Now fast forward, 45 to 60 days later, now dentists are getting emails from the Small Business Administration saying, "Hey, you applied for the EIDL loan." And they're going, "I don't remember applying for the EIDL loan. I remember applying for a $10,000 grant." Well, you can't have one without the other. Now they're getting these emails and they're hitting their inbox. The next logical choice is, what do we do with those? And that's where some of the conversation from today comes from. Do I take the loan? How does it work? All that stuff.
Brogan Baxter:
The EIDL loan was supposed to be for anywhere between zero up to $2 million. Well, that's great and wonderful in theory, but I think they underestimated just how popular this was going to be. And so to share the wealth with a lot of folks, about three weeks ago, so this is maybe like mid May or so, they just kind of slipped in this thing where they're going to start capping it, not at two million, but just at 150,000. A lot of big practice owners out there that have gotten this email are going to find out wow, $150,000. Well, that number could have and would have been much higher a few weeks back. Anyhow, so you get to pick, do you want zero in that scenario? Do you want a 150? Or do you want something in between? You can take whatever you want. And so that's the question dentists have to ask themselves, what do I do?
Casey Hiers:
What are the downsides to taking this money?
Brogan Baxter:
Well, obviously one, unlike the PPP, this actually is a loan, which means you actually have to pay it back. It's not going to be forgiven or any of that. Now it's attractive terms, 3.75% 30 year loan. They don't hand out 30 year loans really anywhere in dentistry. I don't even think you can find that on real estate. I think 25 is about as far out as you go. No payments for 12 months, also attractive. Oh yes, you ring up a little bit of interest, but the interest is deductible so who really cares? But that's what someone really has to weigh is, do I need this or do I not? What's the next steps from there? Should I take it? Should I not take it? How does that work? There's a lot of things you need to consider when you do that.
Casey Hiers:
The biggest downside has to be payback, 3.75% over 30 years. For some folks who have had significant setbacks for this really good opportunity for them, as long as they go over the details or have their team go over the details, somebody with some financial expertise to make sure they're not defaulting in any way.
Brogan Baxter:
That's right. The loan document is about a 15 to 20 pages long. It's very standard. It's standard across different states. We have clients all over the United States. They all look the same, all the paperwork. When it comes to taking this or not taking this, this is kind of where you want to look at, what do I have as a safety net now? And am I reopened now? How busy am I now? How busy do I expect to be? Do I think I'm going to come all the way back? Do I not?
Brogan Baxter:
Generally speaking, the recommendations that we're making is unless someone has an unlimited, well not unlimited, but let's call it a plethora of credit available, so lines of credit, liquidity with bank accounts being a real high balance right now with a lot of money coming in. We're not really suggesting those folks to take it, but if anybody has a doubt or they think things may not rebound as quickly as they had anticipated, or let's say they missed out on the PPP or the bank closed their line of credit, or the line of credit is maxed out. Those folks, I think are kind of more of your prime candidates for someone that would want to take the EIDL.
Casey Hiers:
Brogan, do you see any other waves of funding like this, or any variations of this coming down? Or is this winding up as far as you can see?
Brogan Baxter:
As far as stimulus monies like this, I think barring some second wave of pandemic coming down, I think this is about it. I think they're going to continue to come out with more and more friendly legislature for people that have dealt with the pandemic, that kept their offices open and all those things. There might be some more of those things coming down the road. Right now they're evaluating whether or not to extend some of the limits on the PPP to make it even more user friendly. But I think the actual stimulus is at this point, I would say it's pretty much done.
Casey Hiers:
For the practice owners out there who they're hanging in there, they're reopening, cup's half full, they're positive, they're getting patients back in, what would you tell them in terms of they've got their PPP, they've got their EIDL, look at the details of that. Make sure they are in lockstep with the terms of the 15 or 20 page document. What suggestions would you give for those practice owners who are working and clawing their way back?
Brogan Baxter:
Yeah, so it's a very unique time of dentistry right now with everything that's going on with this pandemic, I actually think right now could be an excellent opportunity for mergers and acquisitions. These funds could be used for some things, as it pertains to acquiring a practice, some of the costs that are going to, that are going to be involved with that. That's absolutely could be used for this. There's a lot of dentists right now that are scared, they're nervous, or let's just say their 401K took a pretty substantial step back and they don't want to have to deal with this again, or the uncertainty of what comes through it so they're going to get while the getting's good. And they're going to allow somebody to come in and potentially buy out their practice. This is something that a lot of folks that they're so concerned about playing defense right now, because of everything that's going on with the pandemic, you actually have to look being more of a little, an offensive minded individual during this. There's a great opportunity. You just got to take a little risk.
Casey Hiers:
During this time, what are some of the big mistakes you have seen practice owners make?
Brogan Baxter:
Yeah, sure. Well, one's not having good advice. I saw practices close too soon because they either they were nervous, they were uncomfortable with it, they weren't getting good advice so they had no idea what potentially could happen. They moved too slow on the PPP loan. Maybe they missed out on round one, may have missed out on round two. They didn't apply for the EIDL grant. A lot of this is money that's put in place to help you, take advantage of it while you can. I would much rather have a lot of money sitting there that I could ultimately just pay back at the end of this versus not having enough and having to scratch and claw as they impact my cashflow at home. There nothing at all in this EIDL loan that prevents you from taking the absolute maximum now and then when it comes back for repayment, turning around and paying absolutely every penny back. You can do that. It absolutely can be done so why in the heck wouldn't you take it?
Casey Hiers:
Well, let's give them the four P's, prior planning prevents problems. And unfortunately, during this time, a lot of practice owners were really focused on the clinical and serving their patients but as some of the financial and the banking and the business side of the practice was happening, to your point, some people missed out on round one, some people weren't sure what to do and how to take it. And unfortunately the folks that were ready for it and getting good advice, as we're hearing all around the country, they're doing okay. We speak to others who were caught a little off guard and weren't receiving proactive advice and there's a struggle and it's a lot slower coming back. Brogan, I want to thank you for coming in to talk about this EIDL loan, give a little bit more detail to our listeners and we'll talk to you soon. Thank you.
Brogan Baxter:
Yeah, sure. Thanks for having me.
Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener for tuning in. The Millionaire Dentist podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com and see why year after year, they retain over 95% of their clients. Thank you again for joining us and we'll see you next time.
