Beyond the normal financial planning and investment advice that you provide your clients, many of them look for advice in all aspects of the personal and business finances. With the economic issues we are facing related to the COVID-19 pandemic, this advice might include expanded unemployment benefits and the PPP loan program under the CARES Act.
The CARES Act was enacted by Congress to aid business and individuals impacted financially by COVID-19. There are a number of provisions that impact both individuals and businesses. Two of these are enhanced unemployment benefits and the Payroll Protection Program (PPP) for businesses.
The CARES Act expanded unemployment benefits for individuals. Benefit amounts vary by state, but the CARES Act increased federal unemployment benefits by $600 per week. These supplement benefits are available through July 25, 2020.
Additionally, the CARES Act expanded these benefits to cover workers who traditionally were not covered by unemployment such as freelancers, contractors and those who are self-employed. These new rules stay in effect until the end of 2020.
For financial advisers, your advice can span two areas. For those facing unemployment who might not ordinarily consider filing, such as those who are self-employed and whose businesses have been hit by the pandemic, you should advise these clients of the rules to ensure they take advantage of any benefits to which they are entitled.
Another decision is one to be made by business owner clients. They may be struggling with whether to hold on and continue paying their employees or to furlough some of them. In some cases, certain employees might actually be better off financially collecting these unemployment benefits. You can help them look at the economics and other ramifications of both courses of action to help them make the best decision for their business and their employees.
The Cares Act includes the Payroll Protection Program or PPP which provides federally guaranteed loans to small businesses. The initial round of funding of $350 billion for the program was used up quickly but Congress has approved a second round of funding, so the program continues. The application period runs to June 30, 2020 unless it is extended.
The PPP allows small businesses to receive a loan to cover costs for payroll and related costs, rent, mortgage payments and utilities related to running the business. The program is open to small business, non-profits, freelancers, independent contractors, sole proprietors and other self-employed individuals.
While the program is administered under the rules of the Small Business Administration, the loans are granted through a number of banks and other lenders. Each institution has its own lending process and they may vary a bit.
Your business owner clients may look to you for guidance as to whether or not applying for a PPP loan makes sense. The answer will vary depending on their situation, but the answer may well be yes. The loan is forgivable if at least 60% is used for payroll within the 24 weeks immediately after receiving the funding, these are the current rules and they differ from the forgiveness parameters that were originally in place. The rules around forgiveness may well continue to evolve making these loans even more advantageous.
The amount that can be borrowed is based on the payroll for the business over a 12-month period increased by a multiplier. No single employee can receive a salary from the proceeds that exceeds an annualized $100,000.
For clients whose businesses are struggling, these loans can be a lifeline. It's important that business owner clients who apply for these loans, or those who have been approved, have a plan in place as to how to spend the money once it's received in order to increase the likelihood that some or all of the loan will be forgiven.
Your clients may look to you for guidance regarding these and other aspects of the CARES Act. As their financial adviser you have a unique perspective on your client’s overall financial situation and your clients value this.