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Strategies on Selling with Existing PPP and EIDL Loans

by Wes Read, CPA, CFP® | October 18, 2022

Have you thought about selling your dental practice but are worried about how a PPP or EIDL loan might affect the sale? It’s OK!  You’re not alone! Many practice owners have been able to sell their practices even when the practice is encumbered with these loans.  While your CFO and the escrow agent will help you through your practice transition and do most of the heavy lifting, here are a few things you should know about these loans.

  • PPP
    This is the easy one. To sell a practice, the PPP simply has to be forgiven.  If you haven’t already applied for forgiveness, we recommend you call your CFO and begin the process immediately. Once forgiven, the lender who provided the loan will generate a forgiveness letter. Many of you have already received these. Keep them in a safe place!  When selling a practice, the buyer, the buyer’s banker and escrow will need a copy.
  • EIDL
    EIDL loans are a bit more involved than PPP loans because they need to be paid off.  Paying them off can be done prior to selling or at the time of closing the sale with the help of the escrow agent. Keep in mind that if the EIDL loan is over $25,000, the SBA will have a lien on the practice and any lender will require pay off prior to funding a new loan for a buyer. Owners or escrow agents can request a payoff letter at anytime from the SBA by simply providing the EIDL loan number.
  • Employee Retention Credit
    While we are on the subject of government assistance, let’s quickly touch on the Employee Retention Credit. Many dentists have or will soon receive this credit. This credit comes in the form of a check or direct deposit from the IRS and is deposited into the business checking account. This deposit is not taxable in the year it is received. Instead, it becomes a reduction to expenses in the year it relates to (either 2020 or 2021) and therefore will require tax return amendments for those years. Unfortunately, this means you will likely owe more taxes in those years once you amend your returns. Luckily though, because the credit relates to prior years, it does not affect the sale of a dental practice in 2022 and beyond.

As always, information and preparation are key. The SBA is notorious for taking longer than expected, so advanced planning is highly recommended, especially with loans and liens that could cause delays. If you are considering a sale in the near future, work with your CFO now to address these government programs so that you insure a smooth transition.

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