Intro

In the midst of the COVID-19 crisis, childcare centers are taking a huge hit. Either they have closed due to healthcare mandates or a majority of parents have pulled their children from the center. If they are staying open, it is almost a minute by minute decision on how long they can keep the doors open. Many open facilities are paying their staff hazard pay to compensate for the risk they are taking.

While we are all hoping and praying that this is a short-term crisis, we must take action today to secure the future of your center.

Managing Expenses

?It?s not how much money you make, but how much money you keep.?

Robert Kiyosaki

This sentiment is more important now than ever. The basic message is to stop spending. Your biggest expenses are rent, mortgage, and your workforce. Finding a way to get those as low as possible for the foreseeable future is imperative.

1. If you rent your space, negotiate with your landlord for a temporary lower rate. While it is tempting to ask for deferred rent payments, many building owners are still paying a mortgage. A good place to start is offering to pay the amount of the mortgage plus five percent. This shows the landlord that you are trying to act in good faith, and you are trying to find a solution that benefits both of you.

2. If you have a mortgage on your facility, contact the bank for payment deferral options.

3. Managing the cost of your employees is harder. This is because you are emotionally attached to your employees. They are your family and you always take care of your family. But you have to take care of yourself and your business too. In the long run, taking out loans you may not be able to repay and eating away at your personal savings to ?help? your employees is going to do more harm than good. With record unemployment claims, there are more options to ensure your employees are being taken care of.

On top of temporary benefits (for employees furloughed for 2 -3 months) or shared work programs (where you can keep employees on at decreased hours and they collect partial unemployment), many states are waving mandatory waiting periods. In the long run, temporarily releasing employees is the most financially responsible path for everyone involved.

For employees you need to keep for basic operations, consider instituting hazard pay to reward them for the risk they are taking to their own health.

Relationships with Parents

A difficult question is how to handle billing during this unprecedented time. While some daycare facilities structure themselves for parents to drop-in, most are enrollment-based. Available slots are limited and parents pay the same amount each billing cycle whether their child attends all days. With so many parents pulling their children from the facility, how do you handle the ongoing relationship?
In these uncertain times, most families would rather give up their child?s enrollment at the day care facility rather than pay full price. Especially since the timeline until things return to normal is unknown. But there is a compromise.

1. You can offer parents to keep their child on the roster for the next 6 months if they pay a nominal fee, such as 10% of their normal billing amount. This creates mutual goodwill between the school and the parents.

2. You should also consider opening your facility to essential workers that need childcare for school-aged children. While this is not what your facility or curriculum was created for, many essential workers are facing a childcare crisis with schools being closed. You can charge discounted daily rates to these parents and of course. Make it clear that this is a temporary measure and won?t be available once schools re-open.

Paycheck Protection Program (PPP)

PPP loans are 100% federally guaranteed loans for small businesses intended for companies to maintain their payroll levels and allow partial loan forgiveness, as described below. The loans are available until June 30, 2020 for eligible companies to cover the cost of:

• Payroll
• Health care benefits and related insurance premiums
• Employee compensation (with some limitations for employees with salaries over $100,000 and exclusions for employees based outside the U.S.)
• Mortgage interest obligations (but not principal)
• Rent and utilities
• Interest on debt incurred prior to the loan

The maximum amount of a PPP loan available to each borrower is equal to the lesser of: (a) $10 million, or (b) 2.5 x its average total monthly payroll costs (including self-employment income and guaranteed payments), as defined in the Act. Unlike most typical SBA loans, the PPP Loans are unsecured loans requiring no collateral, no personal guarantee, and no showing that credit is unavailable elsewhere. The PPP loan, to the extent not forgiven, has a maximum 10-year term and the interest rate may not exceed 4%. PPP loans will be made available through SBA-approved lenders, who must offer a 6-12 month deferment on payment of principal, interest, and fees. 

How much of the Paycheck Protection Loan is available for forgiveness?
CARES permits a portion of any paycheck protection loan to be forgiven on a tax-free basis. The amount that may be forgiven is the sum of the following payments made by the borrower during the eight-week period beginning on the date of the loan:

• Payroll costs
• Mortgage interest or rent
• Certain utility payments

Loan forgiveness is contingent upon the employer not reducing it’s workforce during the eight-week period compared to other periods in 2019 or 2020, or not reducing the salary or wages paid to any employee who had earned less than $100,000 in annualized salary by more than 25% during the covered period.

What if I already applied for a disaster loan and would rather have a PPP loan?
Any disaster loan taken out after January 31, 2020 can be refinanced as a paycheck protection loan.

When will PPP loan applications be available?
The government has set a deadline of Friday, April 3rd for loans to be available. However, most lenders and brokers are saying that this deadline is unlikely as infrastructure needs to be built.

What if I need cash now?
Emergency grants from the Small Business Administration (SBA) included as part of the CARES Act of 2020 provide for immediate grants within three days of submitting the application of up to $10,000 for eligible entities. Those entities include small businesses, sole proprietors, private non-profits, independent contractors, cooperatives, ESOPs, and tribal units, all with under 500 employees that apply for loans in response to the COVID-19. Upon verification, the government, through lending institutions that work with the SBA, will provide grants up to $10,000. The applying entity had to have been in business for at least a year, which may be waived, but certainly before January 31, 2020.

The entity applies for a small business loan through a lending institution who is authorized to make loans under the SBA?s current Business Loan Program and, as part of that process, can immediately request funds with only a tax return and/or credit score as determined by the lending institution/SBA loan process. No collateral or personal guarantees are required. The funds may be used for providing paid sick leave for employees unable to work due to the direct effect of COVID-19, maintaining payroll to retain employees during the disruption, meeting increased costs to obtain materials not available from the original source due to interrupted supply chain, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses.

The applicant shall not be required to repay any of the amounts advanced even if subsequently denied a loan under the Small Business Loan Program. If an applicant received an advance as part of the loan process and ultimately is approved for a loan under the Disaster Loan Program, the advanced amount shall be reduced from any other loan forgiveness amount for payroll costs. These grants are available until December 31, 2020.

Is there anything else you think I should know?
Under CARES, the 10% penalty tax will be waived for taxpayers younger than age 59 1/2 who wish to withdraw up to $100,000 from their IRA’s or 401(k) plans. The distribution needs to be made between January 1 and December 31, 2020 by an individual who is economically harmed by the coronavirus.

Please contact the SBA with questions about how the loans work.

Closing

The goal over the next few months should be to at least break-even financially. Cash out should not be more than cash in. Keep your classrooms sizes as small as possible and take care to disinfect surfaces many times a day. Spend fifteen to thirty minutes each evening reviewing your local and state government websites for new grants or loans. Talk (socially-distanced) to other facilities in your network to see if they are aware of any new funding available.

By implementing smart and timely changes, you CAN survive this crisis.

---

Want to speak with an expert about improving the financial situation for your childcare business? Schedule a Discovery Call to speak with someone from the Honest Buck team.