Paycheck Protection Program – A Child Care Center Owner’s Perspective

  • child care
  • COVID-19
  • financial aid
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It has been an overwhelming time as a child care center owner, given the uncertainties that the COVID-19 pandemic has created. One big frustration has been the ambiguity around the Paycheck Protection Program, often referred to as PPP. The loan has a list of stipulations you need to meet in order to have it forgiven. Since I’ve been a grateful recipient of the PPP, I want to take this opportunity to address the main questions I had around the loan program – including when to open, what will enrollments be like, and how to manage employee furloughs, payroll and cash flow – and talk about how I addressed those questions to help others who may be in the same situation.

Should I bring my furloughed employees back to spend 75 percent of the loan on payroll?
My recommendation: Only bring back the employees you know you’ll need 10 weeks from now. PPP covers you for the next 2.5 months (~10 weeks). Not all families are going to come back immediately. This summer may be much different from traditional summers in terms of enrollment. So, managing your cashflow is critical. Hire only the ones you need and then let go of others. Let them take their unemployment checks, which are typically higher than what PPP would have provided. Keep in mind that it is best to keep in close contact with past employees as you may look to hire them back as the economy continues its recovery.

How should I estimate my ramp up of enrollments?
The answer to this depends on each local community and the state you are in. The best way to determine this is by sending out a survey to parents and being firm about needing a response from them. Emphasize how much you care and how important it is for you to plan your staff so that their children can return to the best environment possible. Families are your best partners in this crisis – give them a call or text individually if you feel that they are drifting away. A NO is better than the uncertainty. For us, we’re predicting and planning around a 70 percent enrollment in August.

Will I face penalties during loan payback if I don’t bring back employees?
No, you don’t face penalties for not bringing back employees, but your forgivable amount does decrease. Essentially you need to spend 75 percent of your PPP on payroll while keeping your wages the same as they were before the pandemic. Let’s say you got a $100,000 PPP loan. To be forgiven for the whole amount, you’ll have to spend $75,000 on payroll. However, let’s imagine you spend only $37,500 (which is half of the amount the PPP asks you to spend on payroll). In that case, you’ll be eligible for $50,000 of loan forgiveness versus the full $100,000. You’ll be returning any leftover loan funds with one percent interest.

If I spend less than the loan, will I be able to pay it back without penalties?
Yes, if you spend less than the loan you received, you can return leftover funds without penalties. Make sure to watch out for your cashflow. If you want to spend some of the loan on improvements, know that you’ll have to repay it with a one percent interest rate, and that you are making a business call that your enrollments will eventually pick up to pay it back.

When does my time start ticking for spending the loan?
The moment the loan is in your bank, you need to start spending it. You have 2.5 months to spend it on payroll. But note that there have been a lot of caveats, and the Treasury Department is exploring an adjustment to this timeframe. That is why I recommend you conservatively spend the loan on payroll, even if you need to eventually return part of it.

How do I keep teachers busy without the center being at full capacity?
We as owners know that before COVID-19, we were always on the treadmill and constantly needing to pivot to accommodate changes. And that will continue to be the case. Why not use the PPP for staff training and bringing new ideas to your curriculum? I have been using the Procare Connect system for my teachers to post their lesson plans and share them with our families. In doing so, I am bringing a great repository that I’ll start using for the foreseeable future. Also, you can bring employees back for partial FTE (full-time equivalent) and have them collect the remaining money from unemployment. This will let you avail of their services in planning and training while your center is still not at full capacity.

What if the employee decides not to return?
The Treasury Department has recognized this, as employees may be fearful for their health or may have to care for their own children or sick ones at home. Or perhaps they would rather be on unemployment insurance. If this is the case, you can have the employee reject your return offer, which allows for their “lost” wages to be counted toward your forgiveness portion.

I encourage you to reference this PDF from the Treasury Department, which has been incredibly helpful in answering the questions I had.

My thoughts are with all of my fellow child care centers – I feel for those who are suffering hardship because of the economic crisis. This is a really tough time to be in our business, which is why it’s important we continue to support each other. We’re in this together!

Owner name withheld to respect their privacy.

Disclaimer: These are perspectives of a center owner in California and not an accountant. Your own situation will be different, so please consult your CPA, attorney and/or bank before making any decisions about your business.

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