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How to Use the Paycheck Protection Program Loan for Your Salon/Spa

April 12, 2020 | By Neil Ducoff | 18 Comments

EDIT: This blog post was updated with new funds dispersement info from the US Treasury at 11:50am on 4/13/20.

EDIT 2: PPP regulations are consistently being updated, and have changed since this blog post was written. We highly suggest you continually monitor the US Treasury’s PPP FAQs page for updates, and again, consult your accountant to discuss specifics to your situation. (5/7/20)

Since it was announced two weeks ago, the Paycheck Protection Program (PPP) has been a hotly debated and confusing topic.

Here are the ultra-condensed PPP details:

  • The intent of the PPP loan is to get employees back on payroll.
  • The loan amount is based on 2.5 x average monthly payroll for 2019.
  • Interest is 1% for two years. No payments for six months. No collateral or personal guarantee required.
  • To be 100% forgiven, at least 75% of the loan must be used for payroll in the eight weeks after funds are received.
  • Your loan forgiveness will be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
  • You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

The dilemma for salon/spa owners

Once owners started digesting the PPP rules, it began a debate over when to put laid off or furloughed employees back on payroll.

Dilemma #1: If you put employees back on payroll upon receipt of funds, your salon/spa may still be closed and cannot service clients to generate revenue.

Dilemma #2: If you delay applying for a PPP loan, the PPP funds may be exhausted.

Dilemma #3: If you take receipt of the PPP loan, but delay putting employees back on payroll until just before reopening, you won’t meet the criteria of using 75% of the loan funds for payroll within eight weeks to be 100% forgiven. That means you risk only a portion will be forgiven.

Dilemma #4: If some employees don’t return, or due to social distancing requirements, you can’t restore the number of full-time employees who were on payroll before February 15, 2020, the amount of loan forgiveness will be reduced.

Dilemma #5: If for any reason you fail to meet any of the loan forgiveness requirements, you’ll need to pay off the entire loan within two years of the loan origination date. Thankfully, the interest rate is only 1%.

Dilemma #6: What if laid off or furloughed employees are making more money on unemployment compared to their normal pay rate? Some employees will prefer to stay on unemployment until it runs out. Remember, you need to restore full-time employees and pay rates by June 30, 2020 for loan forgiveness.

Dilemma #7: Will employees have to file for unemployment again if your salon/spa isn’t allowed to open after eight weeks of receiving PPP money — or if the expected business volume doesn’t happen requiring layoffs? It’s simply impossible to predict these unknowns.

These are the seven dilemmas confronting owners. The question remains, which of the seven dilemmas will you choose or have to deal with?


If you applied for a PPP loan, or have received the funds, consider the following:

  • The key language used in the Paycheck Protection Program is as follows: The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees DURING the COVID-19 crisis.
  • PPP loans are meant to bring employees back to work and back on payroll whether the business is able to conduct business or not.
  • If you cannot meet the qualifications for forgiveness, you will have two years to pay off the loan at 1% interest.
  • Monthly loan payments can be high: Unless 100% forgiven, loan payments begin after six months. Monthly payments are based on the total amount of the loan, plus fees and interest divided by 18 payments. Remember, PPP is a two-year loan with no payments for six months.
  • You will be responsible for payroll taxes, so be sure you have the funds to cover these.

Here is my challenge to you: It is imperative to process and decide on the best use of your PPP loan. We urge you to consult your accountant to ensure the best course of action for your company before accepting any loan.

BEST CASE SCENARIO: You had two or more months of cash reserve and solid cash management disciplines going into this crisis, you can do what PPP was designed to do — get every employee that was on your payroll prior to February 15, 2020, back on full pay. And do this before the “stay home” orders are lifted. Restoring employees to their full pre-crisis pay level will eliminate significant personal financial stress.

In recent weeks, more owners expressed how gut wrenching it was to lay off or furlough their employees and help them apply for unemployment. PPP allows owners to turn this stressful experience into something special and meaningful.

  • If there ever was a moment in time to demonstrate how important and appreciated your employees are to your company — this is that moment.
  • The Paycheck Protection Program is a rare gift for small businesses to pay employees at zero cost or risk to you or your business.

MEDIUM CASE SCENARIO: If your salon/spa was profitable, has some debt and just enough cash to fund operations for a week or two.

OPTION ONE: Take receipt of your PPP loan funds as soon as possible.

  • Keep employees on unemployment, and delay putting them back on payroll until a week or two before reopening. This will allow you to use the majority of PPP funds to cover payroll the first month or two after reopening.
  • The downside is that the PPP eight-week loan forgiveness clock starts ticking upon receipt of funds. The more weeks that pass between receipt of funds to reopening — the lower the percent and probability of loan forgiveness. IMPORTANT: At this time, the Paycheck Protection Program is scheduled to end June 30, 2020.

OPTION TWO: Get approved for your PPP loan but not take receipt of funds until you know when you can reopen. UPDATE: As of 4/10/20, the U.S. Treasury Department now states: “The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.”

WORST CASE SCENARIO: You were never one for financial and cash-flow management disciplines. You’re always struggling to make payroll and stay current on bills and expenses.

If this describes your salon/spa, the best strategy is to view the PPP as just that — a two-year loan at 1% interest with no payments for six months.

  • Because you need cash, get your PPP loan funds as soon as possible.
  • Pay whatever essential bills and expenses you absolutely must and save as much of the loan as possible for reopening.
  • It is unlikely that much, or any, of the loan, based on the requirements, will be forgiven.
  • Be prepared to begin making monthly loan payments at the end of six months.

Again, these examples may not fit every company. Please consult your accountant for financial advice specific to your situation.

The Paycheck Protection Program is an extraordinary lifesaver for small business — especially if you meet the requirements for 100% forgiveness.

I keep saying that this is the BIGGEST opportunity in our lifetime to REINVENT the salon/spa industry for the better.

Let this reinvention begin by showing employees just how fortunate they are to work for an employee-based salon/spa.

Categories: Coronavirus

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Comments

  1. Thank You Neil. This is so helpful and Thank You for everything you have been sharing during the last few weeks. I believe you have been the best out there with understanding and sharing information. Gayle

  2. Thank you for this info. I have asked my banker this and as of last week her answer was “I don’t know”…I am an owner/esthetician and my spa is an LLC with two employees. I take a draw each month instead of being an employee. My question to her and you is this: if we receive these PPP funds sooner than we can use the 75% due to not being allowed to reopen, can the owner increase their amount of draw to fulfill the 75% requirement then disburse funds into payroll as needed once staff is back working? This allows them to receive full unemployment benefits as well.

    1. Hi Robin,
      I would say absolutely not to increasing your draw to meet the 75% payroll requirement for forgiveness. The reason is that PPP requires payroll and the number of employees to restored to pre-February 15, 2020 levels. If your two employees did not have their pay restored over the eight weeks from receipt of funds, you’ll fall far short of the 75%.
      Wish I had a different answer, but I don’t. Still, I urge you to keep checking the SBA Covid-19 site for updates on rules as they do keep changing.

  3. Even a well-positioned business should not risk their financial position to take on this loan if they cannot be open. This program will be great for essential businesses, restaurants, etc. For salons and spas, it’s just not ideal to bring on payroll liability when we can’t be open. It’s designed to ease unemployment by essentially sticking salon owners with the bill for what the state/feds would have had to pay W2 workers on unemployment. As a salon owner, it’s not worth the risk to take on this debt that you may have to pay back if you mess up when employees can stay on unemployment without you taking on the risk.

    The employer’s share of payroll taxes owed on wages paid are not forgivable under PPP. We know that we would need to spend at least 75% or more on payroll. However, we can not use the PPP money to pay our portion of federal payroll tax. So either that money is paid out of pocket by the employer now, or it reduces the amount forgiven and turns into a loan down the line. Why be voluntarily liable to pay this payroll tax when we can’t even be open?

    The PPP program should most likely be looked at as a low interest loan for non-essential businesses. If employees are on unemployment it’s probably better to skip the loan and leave them on unemployment rather than risking financing their unemployment in a loan that may have to be paid back.

    Hopefully, the federal rules on this will evolve to help non-essential businesses.

    1. Hi Erin,
      I agree that one way to look at PPP is as a 1% two-year loan with no payments for 6 months. I also agree that it is shortsighted that the PPP loan cannot be timed for businesses like salons/spas, restaurants, etc., that cannot open.
      There is a second round of funding and lawmakers are aware that PPP is not ideal for businesses that cannot open until “stay home” is lifted.
      We’re both hopeful that the rules will be updated to cover a broader range of businesses.

  4. If the employee(s) don’t want to come back can you hire different employees to have the loan forgiven. Or does it stipulate the same employees have to be rehired?

    1. Hi Ramy,
      The rules for forgiveness state to restore your payroll and number of employees to pre-February 15, 2020 levels. If employees don’t want to come back, definitely put the PPP funds into hiring new employees. I urge you to keep checking the SBA Covid-19 site for updates on rules as they do keep changing.

  5. I’m considering using some of these funds as signing bonuses to recruit before that deadline.
    Also to give bonuses to my loyal therapists that will be starting off slow with clients while things get back to normal. “Boost their pay“ in order to meet that 75%.
    Hopefully it can be used for these purposes.

  6. I’m self employed, no employees, I am not sure of the best course of action. I have applied for the EIDL with a request for the advance which in my case will be a $1000. I am not sure if I should apply for this or wait for the unemployment. Also, is there a way to get the Federal grant of $600 a week that is tied to unemployment now or do I have to wait for the UI to be set up, hopeful by 4/30 in my state, and I understand the PPP could affect the UI. I am concerned when I can go back to work safely because there is no safe distancing in the industry. I look forward to you advise. Thank you

    1. Sorry for the late response.
      You need to communicate with your state Unemployment. Self-employed and 1099 were able to file for PPP loans on April 10th. Find a local SBA bank to apply at. And do it fast. The second round of PPP funding that was released on 4/27 will go fast. Just remember, PPP funds are to get off unemployment. You can’t take both. Hope this helps.

  7. Good morning. Could you please resend the email with the budget outline and how to get started. You sent it out awhile ago and with all this craziness we have lost that very useful information.

    Carol (salon owner)

  8. What about the use of funds for sole proprietor? I am an employee of llc- but not sure how it works for me as owner/ sole proprietor. Do I use the 75% for my payroll as would for any employee or are we not included as employee? And I have home business as of 3 days before being closed down. So the 25% for home is excluded as well, so now how do I use those funds?

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