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Financial advisors are ready for client questions after President Donald Trump on Sunday signed the $900 billion emergency coronavirus relief bill.
Among other provisions, the legislation offers financial assistance for small businesses and individuals. It includes a temporary unemployment benefit of $300 per week and a direct stimulus payment of $600 that would go to Americans who earn below certain income thresholds. People facing eviction will also get relief.
Businesses would receive subsidies, which is key for hard-hit sectors such as restaurants, gyms and theaters.
This time around, the Paycheck Protection Program, or PPP, will issue $285 billion. The funding is better focused after criticisms of loans issued earlier in the year.
Businesses are eligible to apply if they have fewer than 300 employees. Previously, that number was 500. In addition, hotels, restaurants and other businesses in the food service industry are eligible to receive 3.5 times the amount of their average monthly payrolls in 2019. For other businesses, that amount is 2.5 times the average monthly payroll.
Scott Ruesterholz, portfolio manager at Insight Investment in New York, applauds the economic boost the stimulus should bring. The combination of direct checks, unemployment benefits and payroll protection should boost personal income over the next three months by at least $400 billion, or over 2% of gross domestic product, he says.
"As public health restrictions slow the economic recovery in (the first quarter), this package will counter weaker labor market momentum and bridge the economy until the vaccine's rollout," he says. "The stimulus checks, in particular, will likely boost personal savings in the near term."
Ruesterholz says pent-up demand may drive a meaningful acceleration of the economy in the second half of 2021 and bring next year's GDP growth toward 5%.
"This relief package -- by supporting businesses that might otherwise close and protecting more consumers' income -- will help to significantly reduce the permanent economic scarring wrought by COVID-19, allowing the economy to more quickly return to its potential, a process that will likely take at least another 18 months," he adds.
COVID-19 Stimulus Is an Economic Shot in the Arm
Mario Hernandez, principal and director of operations at Gemmer Asset Management in Walnut Creek, California, also references the vaccine in his assessment of the package. He says the stimulus should provide a "shot in the arm" for small businesses, many of which are hanging on by a thread.
Hernandez says he will recommend that clients who own small businesses apply for the latest round of Paycheck Protection Program loans and grants. "The stimulus should help to provide a boost to small businesses and help until vaccines are widespread," he says.
Leon LaBrecque, chief growth officer at Sequoia Financial Group in St. Clair Shores, Michigan, applauds the passage but says new questions will pop up in a few months.
"Everyone under the income limit gets a stimulus check, but the unemployment (benefit) runs out in March," he says. "March will be the telling sign. With the vaccine intercept of the virus, will that be enough to get us back to some version of normalcy?"
He likes the second round of PPP loans, pointing to the new provision that allows business expenses paid with PPP loans to be fully deductible. Congress added this provision despite objections from the IRS.
For those with deferred student loan debt, there is no relief in the current bill. Previously, the Trump administration said borrowers would not have to resume payments until after January 2021.
Although the new stimulus bill did not address a lengthier reprieve, there is still room for President-elect Joe Biden to use an executive order to extend the reprieve after he takes office in January.
For clients holding student loan debt, Sibyl Slade, vice president and financial advisor at LifePlan Financial Advisors in Atlanta, recommends applying their monthly repayment toward emergency savings. "Or if their emergency savings is adequate, pay off some other debt until we learn the final ruling on student loan debt."
No Federal Taxes on Coronavirus Stimulus Payments
Slade is prepared to discuss with clients the income tax ramifications of stimulus payments.
"Clients' households who received stimulus checks will not have to concern themselves with paying federal taxes on the stimulus payment they received, since their eligibility was based on their 2018 or 2019 federal tax returns," she says.
For small businesses, however, there is still a concern that loan forgiveness may increase their tax bracket.
"Currently, that is not the case," says Slade, adding that the situation is similar to the 2007 Mortgage Forgiveness Debt Relief Act.
"For businesses who have PPP funds on hand or are expecting to apply for future rounds, I would advise them to maintain adequate reserves either from loan proceeds or retained earnings because of savings from cutting expenses," she says.
COVID-19 Relief Has Benefits for Mom and Pop Businesses
The best thing to come out of the stimulus for small businesses is that funds will be made available through Community Development Financial Institutions, "which are already engaged in providing business advisory and technical services to the small mom and pop businesses in the community," Slade says, noting many of those "were effectively disenfranchised from the initial offerings of PPP."
Stephen Akin, founder and investment advisor representative at Akin Investments in Biloxi, Mississippi, wishes the stimulus had passed before Thanksgiving, but he's happy it eventually arrived.
Akin notes the significance of the $325 billion available for small businesses. He also sees an effect for investors. "The financials will benefit from this reinforced funding for the PPP. It is interesting that the financials have firmed up a bit in the market," he says. "It would be a positive if that sector would finally begin to lead as the market works higher."
Connect With Other Financial Professionals to Coach Clients
Peggy Haslach, financial advisor at Finity Group's Seattle office, realized earlier this year how the stimulus packages impact her clients, which include many women- and LGBTQ-owned businesses.
"I learned very quickly from the first stimulus bill that I need to team up with (certified public accountants), bankers and the Small Business Administration to coach my clients on the provisions that affected them," she says.
These can range, she says, from unemployment benefits for self-employed workers to whether clients should apply for the Small Business Administration's Economic Injury Disaster Loan or the PPP, or both.
Haslach explains that she had to first walk clients through the application process. They then had to determine whether they were going to accept the funds and, if so, how they needed to use the money. Lastly, they had to apply for the loan forgiveness.
"It seemed we had a lot of false starts, and we all had to dig to make sure we were doing things correctly," she says. "We were literally building the plane as we were flying it."
She plans to approach the second bill with the same strategy. "I understand the spending restrictions are not as strict as the first round, and there are also pages of tax breaks and extenders in the bill, and we will want to make sure that we can get any of the tax breaks we are eligible for," Haslach says.
She notes that the PPP loans must go through a bank. "I feel lucky because most of my clients have good banking relationships. If you have credit issues or do not have a good banking relationship, then you may be a bit hard-pressed to qualify. This has not changed from round one," she says.