In the United States, small businesses are now seeking for emergency federal loans to help cover costs and lost revenue brought about by the coronavirus crisis.
This is also the case for independent financial advisors and their firms. Aside from assisting their clients, they also applied for loans to keep their practice afloat.
It’s a good thing that the Paycheck Protection Program (PPP) had a budget of $349 billion for small-business loans. By April 16, the funds were already depleted. During the two weeks that they accepted applications, the Treasury said that there were around 1.6 million who were approved for the loan. These funds can be forgiven in the condition that 75% must be allocated for payroll. Fortunately, it was reported on April 27 that the U.S. Small Business Administration is now accepting new applicants for the PPP.
Financial advisors also applied for loans to make sure that they have enough for employee salaries and other expenses to keep the business going. The market downturns have hit assets—therefore affecting their clients’ portfolios and their revenues.
Certified financial planner and founder of Capital City Wealth Management Benjamin Brandt says that financial advisors also have to make sure that they can support their employees in the case that this goes on for six months to a year. Brandt was able to secure a PPP loan amounting to $40,000 from local lender Cornerstone Bank. That amount is enough for eight weeks worth of payroll for himself and his two employees.
Brandt admitted that they still have sufficient capital. However, he believes that it’s better to have money and not need it rather than scramble for funds in an emergency. Brandt and other financial advisors note these three lessons that could help you in your financial decisions in this uncertain time.
EVALUATE YOUR OPTIONS
Aside from the PPP, other lifelines are available for small businesses and independent advisors. Employers can make use of several refundable tax credits like credit for paid sick and family leave and employee retention credit. This has been made possible through legislation for coronavirus relief.
However, there are a few trade-offs you have to weigh when deciding which loan program to apply for. For example, you can’t take employee retention credits and apply for the PPP at the same time.
Another federal loan program is the Economic Injury Disaster Loan (EIDL), which granted loans of up to $10,000. However, it recently stopped accepting new applications.
When the EIDL was still accepting applications, Michael Molitoris, the founder of North Carolina-based Flagship Wealth Management Group, was considering it for his firm. But when he learned that he could only get $2,000 through the EIDL, he decided to apply for a PPP loan instead. Molitoris was able to obtain a loan of $15,500 from online lender Kabbage. His decision to choose PPP over EIDL was because he was thinking about what might happen in 6 months. The amount that he was eligible to get via the EIDL would not be enough to support him and his wife, who is also the chief operating officer of his firm.
BORROW FROM LOCAL LENDERS
It pays to know your local bank representative—literally and figuratively. Certified financial planner, Rockie Zeigler of RP Zeigler Investment Services in Peoria, Illinois, was worried about the revenue situation of his company in the short term due to the uncertainty of the stock market and the future. After deciding to apply for a loan, Zeigler used a logical approach to find a lender. He eventually chose Morton Community Bank because of his existing business with the bank.
Aside from having a personal mortgage and business checking accounts, he also knows the bank representative personally. He was able to get his PPP funding by mid-April. Zeigler thinks that his application went well because he applied as soon as he could. Another plus is that he knows the banker well, so they were able to coordinate with his accountant for a smoother document-gathering process.
KEEP AN EMERGENCY FUND
Advisors urge clients to maintain emergency funds, so it’s a given that they do it too. You can back up your finances by setting aside cash and applying for a back-up credit line ahead of time.
It’s also essential to check how your business can handle a possible drop in revenues by reviewing profitability and doing a stress test. Brandt recommends aiming for a 50% profit margin and having a considerable amount of back-up cash.