By the end of last week, a few clients reached out to us to let us know that they received the SBA approval for their EIDL loan. The amount for most loans came in at $150k. We were then asked if they should take advantage of these loans.
We are recommending that practice owners take this loan with the intent to pay it back in full once they are sure that they no longer need those funds, especially since there appears to be no prepayment penalty with this loan. Or, practice owners can take the full 30 years to pay back this loan at a low fixed interest rate.
Our philosophy during uncertain economic times is to take advantage of financing that becomes available even if you are not 100% sure that your practice might need those funds at this time. Remember, there is no guarantee that this financing will still be available if you need funds to replenish working capital for your practice later on. It’s a paradox for all business owners that they can borrow money more easily when they don’t actually need the money, but struggle to borrow when they need it most.
Plus, the 3.75% interest rate is quite reasonable and the interest you pay is tax deductible. Assuming you’re in the 40% marginal tax bracket combined for federal and state taxes, that puts the after-tax interest rate at just 2.25%. And a 30-year term is very attractive too.
To take this one step further, the COST to you for this financial safety net is 2.25% annually on the amount borrowed and outstanding. The BENEFIT is the peace of mind these funds provide as you reopen your practice.