We are in uncertain and volatile times. There were more than 6.6 million new claims for unemployment last week (week of March 30, 2020). The US stock market, as represented by the S&P 500, is down about 20% year-to-date. We are also living a “new normal” with shelter in place orders now active in over 40 states and several countries abroad.
With all of these reasons highlighted above, and with growing cases and deaths from COVID-19, Americans need relief. Relief for individuals and business owners is on its way thanks to the $2 Trillion Stimulus Bill, but understanding and keeping up with the requirements and options is almost a full-time job now. Parameters for stimulus checks are changing and we are now just receiving clarity on Small Business Administration (SBA) loans for companies to maintain payroll. There is relief for individuals, small businesses and certain industries disproportionately being affected such as airlines, hospitals and others.
I have combed through different articles, listened to several webinars and spoken with experts on these programs. I will not discuss every program or loan available here as this piece would be quite lengthy, but I will highlight the key relief initiatives through the Coronavirus Aid, Relief and Economic Security (CARES) Act and programs to help individuals and small businesses.
Stimulus Bill Benefits
As many of you have already heard, stimulus checks are on the way. Individuals and families will receive the following amounts based on their income, filing status and 2018 or 2019 Adjusted Gross Income (AGI).
The amount of a stimulus check phases out $5 for every $100 in income for single filers over $75,000, for head of household over $112,500 and for married filing jointly over $150,000. You can calculate your exact amount here. Those who opted for direct deposit to receive refunds when they filed their taxes are in luck as direct payments should be sent out in weeks versus a paper check, which may take considerably longer.
Outside of stimulus checks, there is relief available for those with little liquidity or cash on hand to pay bills. Under the CARES Act, the federal law put in place two protections for homeowners: (1) a foreclosure moratorium and (2) a right to forbearance for homeowners with a federally backed mortgage who are experiencing financial hardship due to COVID-19.
For homeowners with a federally backed mortgage, a phone call to your provider is required to request a forbearance of three months. For example, if you contact your lender in April, you can request to not make payments in May, June and July with no impact to your credit and no late fees. However, interest will continue to accrue. Importantly, the August payment will require you to make four payments unless you contact the lender for another forbearance or loan modification.
For homeowners with a conventional, non-federally backed mortgage, a deferral is an option. Most banks are providing up to 60 days with no payment, again with no impact on credit or late fees. With the deferral, no additional payment is due at the end of the 60 days. Instead, the missed payments are added to the end of the loan, extending the term by two months, or rolled into the mortgage balance by re-amortizing the loan and increasing the amount of the remaining payments.
For those with federally sponsored student loans, you may have already felt the reprieve. Student loan payments and interest accruals have been suspended until September 30, 2020. For those facing economic hardship, this is truly a benefit to increase cash flow. However, for those with stability of income, and the ability to continue paying, this can be an opportunity to accelerate your debt paydown strategy. With all of your payments being applied to the principal, being student loan debt free is within reach sooner than you expected.
Lenders are providing relief for credit cards, home equity loans and other loan payments. Being proactive is key: ensure you make arrangements before any missed payments to avoid adversely affecting your credit or being assessed a late fee. However, once an arrangement is made with a lender, use of the credit card or unused equity lines will be suspended.
In addition, cell phone service providers such as AT&T, T-Mobile and others have agreed to not cut off service and are allowing customers to enroll in payment plans to maintain service. Other utility companies have followed suit with agreements to not cut off service and to provide short-term payment extensions.
For Small Businesses
As a financial advisor working with small businesses, I have witnessed the severity of the impact of COVID-19 first hand. With many companies deemed as non-essential, stores have closed and hours have been cut, all with no definitive end in sight. Many small businesses are struggling to survive despite a lack of revenue and little relief from key expenses such as rent. However, two loan programs may offer much-needed support.
EIDL offers small businesses with up to $2 million in revenue up to six months of working capital and an advance of up to $10,000. The loan is designed to provide immediate economic relief to businesses that are currently experiencing a temporary loss of revenue. The loan advance will not have to be repaid and loan payments will be deferred for 12 months. Small businesses can apply directly on the SBA website.
PPP is designed for small businesses with payroll costs and less than 500 employees. The loan will be fully forgiven if the funds are used to cover payroll, interest on mortgages, rent and utilities (due to likely high participation, at least 75% of loaned funds must be used for payroll to be forgiven). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees. Forgiveness is based on businesses maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease. The loan amount maximum is 2.5X monthly payroll costs with a maturity of two years and an interest rate of 1%. For sole proprietors with no employees, the maximum loan is $20,833 and evidence of income is required through the prior-year tax return, 1099s, and other tax documents. Most banks are only allowing existing small business clients to apply.
In addition to the loans mentioned above, a new tax credit was approved with the CARES Act. The Employee Retention Tax Credit provides a refundable tax credit of up to $5,000 per worker for businesses that were forced to fully or partially shut down due to COVID-19 or experienced a large sales decline during the calendar quarter. Eligible businesses may claim the credit for qualified wages that they pay after March 12, 2020, and before January 1, 2021.
Outside of federally-backed programs, states and local governments are also providing relief to small businesses with favorable loan terms and interest rates. In addition, companies like Facebook and Amazon are introducing grant programs for small businesses during this difficult time.
There are many resources available for individuals and small businesses thanks to the stimulus bill. It may seem like you are trying to navigate through a labyrinth to identify the best program or resource for your or your business, but reaching out to a trusted advisor like your Financial Advisor or CPA should help as we all try to get through these challenging times.
Kamila McDonnough is the President of GRID 202 Partners, a financial planning firm with locations in Washington D.C. and North Carolina. She has nearly two decades of financial planning and investment experience assisting high net worth individuals, endowments and foundations, and business owners with comprehensive wealth solutions and holistic planning. Kamila is on the Board of Directors for the CFP Board. The CFP Board of Directors is the policymaking and oversight body of Certified Financial Planner Board of Standards, Inc., for over 86,000 CFP® professionals in the U.S. Kamila obtained her B.A. and MBA from The Pennsylvania State University. She is a CERTIFIED FINANCIAL PLANNER™ and holds licenses for Life, Health and Long-Term Care Insurance.