The Big Pandemic Payback

TEKSOMOLIKA / STOCK.ADOBE.COM

The biggest concern during the pandemic, of course, was the threat of spreading or contracting COVID. Dental practices had to not only worry about themselves and their patients, but also react to official guidance–including ever-changing, dynamic PPE regulations.

But they also had to worry about what would happen to their business. That is, most practices were shuttered, except for a couple of days a week, and those were only to see emergency cases. As a result, not much money was coming in.

Happily, the federal government offered a program designed to keep small businesses (like dental practices) afloat. The Paycheck Protection Program (PPP) is a $953 billion business loan program established by the United States federal government in 2020. PPP allowed small businesses to apply for low-interest, private loans to fund payroll and certain other costs. In some cases, an applicant could receive a second draw, typically equal to the first.

The program was implemented by the U.S. Small Business Administration (SBA).

Thousands of dental practices availed themselves of PPP loans.

“The SBA does a great job of keeping track of all industries that took out loans,” Mary Kathryn Williamson, Dental Services Senior Tax Manager at Aprio, LLP, says. “According to the SBA, there were 173,220 dental practices that took out PPP loans.”

But what did the program really mean for dental practices?

Help
There was a lot of uncertainty during the early days of the pandemic. Not only did practices have to worry about employee safety and constant rule changes from the Centers for Disease Control and Prevention (CDC), but they also had to worry about the stability and security of their businesses. The SBA offered a lifeline to help protect them.

“When dental practices were applying for a PPP loan, they had to certify in good faith the following,” Williamson says. “Current economic uncertainty–most if not all dental practices were so uncertain of what the future would look like during this time that they needed this money to support operating and running their practice; The funds will be used to retain employees and maintain payroll or make mortgage interest payments, lease payments and utility payments.”

“In general, the PPP loans were related to labor,” Roger Levin, DDS, adds. Dr Levin is CEO and Chairman of dental practice consulting firm the Levin Group in Owings Mills, Maryland. “It was about how many employees you had prior to the pandemic that were employed. So, anybody you terminated along the way would not count. Now, there was a limit, so most dental practices were not affected, but some DSOs could not take advantage of the loans, because they had too many employees to qualify.”

For the dental industry, at least, Dr Levin notes that many practices were saved.

“The PPP loans were unexpected, and they were a lifesaver versus a catastrophic event,” he says. “We ended up losing somewhere between 2 and 3% of dental practices from the pandemic. And some of the reasons were very benign–older doctors who didn’t want to come back any longer, a doctor who was ready to retire.”

Regrettably, PPP loans didn’t save everybody. However, Dr Levin notes that the practices that did go out of business were likely to be lost, regardless. The PPP loans prevented the statistics from being more dire.

“A lot of the practices that we lost, the pandemic merely accelerated what was going to happen,” he says. “If it had not been for the PPP loans, I estimate we would’ve lost 10% or more of dental practices, and here’s why: 90% of all dental practices–when the pandemic hit–had 1 month of cash available to cover expenses. Most dental practices are LLCs or Sub chapter S’s in their corporate structure–which means that taxes have to be paid on any money ever made. They can’t retain earnings like a C-corporation and not pay taxes. So, these dentists have already paid taxes on last year’s money and the year before and the year before that, and they tend to take most of it out of the practice, leaving about 1 month of cash. And then it either becomes their income for lifestyle, it becomes savings, or it just gets generally spent. And what would’ve happened without PPP is that dentists would have to have dug into their own pockets to pay the expenses of the practice for 1, 2, 3, or 4 or more months. Now, one thing that took a lot of pressure off was that a majority of dentists terminated their staffs so that the staff could go on unemployment. Some staff members actually did better on unemployment than they did in their actual compensation. The idea was, go on unemployment and we’ll bring you back as soon as we can, which is generally what happened. But without the PPP loans, there were a lot of overhead expenses where cash would’ve run out, and dentists would have to have gone into their savings to keep the practice afloat. Or if they didn’t have savings, they would’ve had very serious problems, because banks were not lending. You couldn’t even get to the banks at the time.”

Usage
The loans were meant as an economic lifeline for small businesses–like dental practices. As the name suggests, they were meant to cover payroll, but there were also other expenses with which they could help.

“Theoretically, it was for payroll, but in most practices it just got absorbed as revenue. And it was used accordingly, since payroll was being paid anyway,” Dr Levin explains. “Now, if you fired people permanently, then you couldn’t use it. So, if you reduced your staff, that would’ve been a problem. But generally, the loans were for labor-related issues, but in reality it just became a revenue payment to the practice.”

Adds Williamson, “Proceeds from a PPP loan could be used for payroll costs; health care benefits; paid sick, medical or family leave and insurance premiums; employee salaries, commission or other similar compensation; mortgage interest payments; rent; utilities; interest on any other debt obligation that was incurred before the period.”

Loan amounts were all over the map according to practice size and need. The amount of a PPP loan was approximately equal to 2.5 times the applicant’s average monthly payroll costs.

“According to the SBA, dental practices received on average $80,000 per loan,” Williamson says.

William Flora, DDS, of Elkhart, Indiana, received a $146,000 PPP loan. And though he was prepared to repay the loan, in the end, his–and most other PPP loans–were forgiven.

“Mine’s forgiven; the whole thing,” Dr Flora says. “What you could use it for is payroll, mortgage, interest, utilities. The way you had to figure it out is you had to do your payroll or the same payroll the previous year and figure out how much you could get for the 2 months you got to have the loan, because it could only be for 2 months. We were fortunate in Indiana; some other states not as much. The last day that I worked full-time that year was March 17th. And then I got to go back to work full-time on April 27th. Now, in between that, we worked maybe 2 days a week just seeing emergencies, because they didn’t want people going to the ER. They would rather have people seen in a dental office because there’s less chance of COVID spread.”

Dr Flora used his loan in several capacities.

“We used it for payroll,” Dr Flora says. “We also used it for rent, as well as utilities–electric, phone, all that stuff that kept on when you were still getting charged, even though you weren’t in the office.”

A Lifesaver
What did it mean for the industry? Was it just a convenient thing to have or was it a lifesaver?

“Dental practices were one of the hardest hit industries during the pandemic,” Williamson says, “Due to the nature of the industry, their job is to be in-person with patients, so when COVID hit, it shut down nearly all practices for at least 4 weeks due to government mandated shutdowns. So, when I say PPP loans were a lifesaver for dentists, they really were. It was amazing to see dentists get this money and keep their staff employed and paid. No one knew how long this was going to last but these loans provided relief and comfort to get through such an uncertain time.”

Some practices, like Dr Flora’s, were in pretty good shape to begin with, and the loans just helped keep them out of trouble.

“I ran a pretty financially stable practice,” Dr Flora observes. “We were a little better off than probably most dentists. So, it was just a great thing to have to help us get through that time. Especially when, since it was an unknown time, you didn’t know how long you were going to be out. Other states–like California, New York–they were suspended much longer than we were. Every state had its own guideline when they let people come back to work. They could have made it without, probably, but when you did the loan, you weren’t sure–nobody knew–how long you were going to be off. Could we have made it? Yeah. We would’ve probably made it, but it would’ve been hard.”

But for practices that may not have been in as good as shape as those like Dr Flora’s, PPP loans made all the difference in the world.

“I would say for the majority of practices in the country, it was probably a lifesaver,” Dr Flora says. “I know there are a lot of DSOs that own practices that were startups and trying to make it go that went out of business, because they couldn’t pay the amount of money that they needed to pay and generate that income, because practices weren’t working.”

Repayment
Ultimately, the loans became “benefits”–for lack of a better term–as they were forgiven. All recipients had to do was apply for forgiveness and, most often, the loans were excused. However, no one knew that was going to be the case when they first applied.

“It became free money,” Dr Levin adds. “In most cases, you didn’t repay it. Now, you didn’t know that early on, but in most cases you had loan forgiveness. Now, you didn’t know that officially at the beginning, but you knew that these loans were going to be repaid at a low interest. So, it made sense to take them. And there were also 2 different years you could apply for PPP – ’20 and ’21 – when you could double the amount over 2 years.”

“Most people got them forgiven as long as they used the money correctly,” Dr Flora adds. “Payroll, rent, mortgage, utilities–I would guess 99% of the time you got it forgiven, as long as you kept all the receipts and could prove it to the banks that loaned it.

“I sit on a bank board as well,” he continues. “I don’t know how many PPP loans we did, probably, 1,000 or 2,000. And a bank is only making 1% interest on it. The banks weren’t getting rich on this; they were just doing it to help people not go bankrupt. At our bank, we saw everything from physicians to dentists to businesses to restaurants to you name it. They used the money so that they could stay afloat and make it through to when they could go back to when things are relatively normal.”

Loan forgiveness was not complex or onerous.

“The beauty of these loans is that if required conditions were met, they are 100% forgivable,” Williamson says, “To qualify for forgiveness, the funds must have been used for eligible payroll costs, payments on business mortgage interest payments, rent, or utilities during either the 8- or 24-week period after disbursement.”

Ultimately, forgiving loans not only helped those dental practices, but also their communities.

“Dental practices are often embedded into the fabric of communities large and small, and most are privately owned small businesses,” Williamson says, “So, not only was the first round of PPP there to immediately help the industry keep employees on payroll and offices open, but that the second round of PPP helped dentists maintain staff and invest in their practices so they could continue to thrive in a post-COVID environment.”

In the end, the availability of PPP loans may just have saved dentistry during the pandemic.

“One thing to keep in mind is that without these PPP loans, I do think we would’ve had a very significant event in dentistry,” Dr Levin says. “Early on, I was quite concerned, and I was very involved in helping the industry pro bono, doing everything I could. I was very concerned about how many practices we would lose. PPP made a huge difference. And one of the recommendations I now make is that practices should try to have 3 months’ cash on hand. Even though you have to pay the taxes on it as you earn it, they should have more than one month of cash on hand. We avoided a catastrophe because of the government’s loan programs.”

Depending on who you ask, the pandemic may or may not be over yet. We seem to have returned to some uneasy sense of normalcy and business seems to be back where it was pre-pandemic. But, 3 years ago, we didn’t know what was going to happen from both health and business standpoints. Not every dental practice came out unscathed, but the SBA extended the helping hand, and likely saved a lot of practices from going under.