When is the coronavirus pandemic going to end? No one knows for certain. Meanwhile, each of us has the job of staying healthy–not only physically and emotionally–but financially as well. COVID-19 continues to have an economic and financial impact on small businesses. Small business owners are struggling to keep their doors open while others have had to close their doors temporarily and some, indefinitely. Thankfully, not all hope is lost. This article is focused on recent economic relief and stimulus packages, and what they mean for small businesses.
The Multiplier Effect
The goals are to keep people and businesses afloat during unprecedented times–keep people employed and jump start a weakened economy. How does an additional $100 to a person stimulate the economy? Imagine that person spends $70 and saves the remainder, and that ratio continues. The next person receives $70, spends $49 and saves $21, and the next person spends $34 and saves $15. The $100 turned into $153 of spending (or consumption)–the multiplier effect. That in turn increases demand, business expands, unemployment drops, 401(k) balances grow, and the skies are blue again.
Coronavirus Preparedness and Response Supplemental Appropriations Act
The Act provided $8.3 billion in emergency funding for federal agencies to respond to the outbreak–75 percent went to research and development of vaccines and diagnostics, and state and local response. It also allowed $1 billion in loan subsides that could enable the Small Business Administration (SBA) to provide up to $7 billion in loans to help small businesses at 3.75 percent and nonprofit organizations at 2.75 percent. They offered long repayment terms of up to 30 years.
Families First Coronavirus Response Act (FFCRA)
The FFCRA is to assist covered employees and families through the end of the year with free coronavirus testing and food assistance. Areas affecting businesses include requiring some employers to provide paid sick and up to 10 weeks of family leave. It provides refundable employer payroll tax credits for the paid sick leave and Family and Medical Leave Act (FMLA), and health insurance costs. Those with fewer than 50 employees may be exempt if offering the leave would risk them going out of business.
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
The CARES Act is $2.1 trillion and intended to relieve the hardship from putting commerce on ice to help “flatten the curve” and public health. The law benefits seven main groups including big business, hospitals and public health, federal safety net, state safety net, state and local governments and education. I’ll focus on two other groups–small business and individuals–with selected highlights.
- Paycheck Protection Plan ($350 billion) – Allows businesses to borrow enough to cover monthly payroll costs for up to 2.5 months. Portions used to maintain payroll, rent and existing debt could be forgiven as long as employees stayed employed through June.
- Emergency Grants ($10 billion) – Provides for grants up to $10,000 to provide emergency funds to cover operating needs.
- Extra Unemployment Benefits ($260 billion) – Increases benefits and broadens who is eligible. Adds $600 per week on top of state benefits and may last for four months.
- Cash Payments to Individuals ($300 billion) – Income tax credit for up to $2,400 for couples filing joint, $1,200 for individuals, and $500 for children under 17. Adjusted Gross Income threshold amounts are Married Joint $150,000, Head of Household $125,000, and Singles $75,000. Rebate reduced $5 for every $100 over the threshold. Note: Intended benefits may be off target. Say your income in 2018 (or 2019) was high, but 2020 was low due to layoff. Your immediate credit may be small (due to prior year’s high income), and you must wait to file 2020 return for this year’s credit.
If you’re worried about your 401(k) plan balance–hang in there. Getting out means missing out and a reasonable investment strategy will likely mean recovery and then some. If you’re unemployed or a business owner, I hope this article gives you ideas to discuss with your trusted advisors who better know your situation, the laws’ specifics and can explore opportunities. Finally, if you’re considering one of the loan programs, run–don’t walk to your friendly banker. And more government plans are in the works as I write this.
It’s a grind. You may have a bad day today. It may be bad or worse tomorrow. But hang in there. We’ll get through this. Secure your future wisely.
This article can also be viewed at the Reno Gazette Journal.