RIAs are scrambling to learn more about the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion relief plan signed into law this week to help American citizens and businesses make it through the pandemic.
Cash-crunched RIAs might be seeking relief for themselves and many others are considering taking on forgivable debt as a precaution. But every advisor should be learning about it on behalf of their clients, according to observers.
Included in the CARES Act is the Payroll Protection Program, a $349 billion forgivable loan program to help small businesses with fewer than 500 employees. The application window for the program, run by the Small Business Administration (SBA), begins April 3 and closes June 30.
How much money borrowers can get depends on how long they’ve been operating, the seasonality of their business, and the nature of their costs.
Businesses that operated from June 30, 2019 to Feb. 15, 2020 are eligible for a loan equal to 250% of their average monthly payroll costs. Others can use an average of January and February of this year. The maximum loan amount any business can receive is $10 million. (The U.S. Senate Committee on Small Business and Entrepreneurship published a guide to the CARES Act for small business owners with more details.)
Many costs can be tallied and used to calculate those loan amounts including: Compensation (salaries, wages, and commissions), paid leave (including vacation, sick, maternal, and paternal), group healthcare insurance premiums, retirement benefits, and state or local tax assessed on the compensation of employees.
Employee and owner compensation over $100,000 and compensation of employees whose principal place of residence is outside of the U.S. cannot be included.
Businesses can use the loan money to cover payroll costs (salaries, wages and commissions), the premiums for group healthcare benefits, interest payments on any mortgage, rent, utilities, and interest on any other debt obligations that were incurred prior to the assistance period.
As long as employers maintain their payroll, the loans will be forgiven. There are no SBA fees and at least six months of deferral with maximum deferrals of up to a year.
Most RIAs qualify for a loan and it seems many are eager to explore them.
On Tuesday, more than 700 people tuned into a webinar about the CARES Act by SkyView Partners, a Minneapolis-based company that matches broker-dealers and RIAs with a network of banks willing to give them traditional loans for succession plans, mergers, and acquisitions.
After an update to the plan was released this week, SkyView held a second online meeting on Wednesday — 250 people attended even with only a 30-minute notice before it began, a sign of interest in the program, Scott Wetzel, managing partner and CEO of SkyView, told RIA Intel.
At least three of SkyView’s bank partners plan to offer the Payroll Protection Program, or PPP, loans, Wetzel, said. He had not discussed the topic with others yet.
However, not one listener had reached out to SkyView about help applying for a PPP loan as of Thursday morning. Few RIAs are in need of cash so badly that they are considering the new program. RIAs profit margins are generally 25% to 30% and well-run firms are capable of weathering market downturns.
Wetzel said he hopes advisors were tuning in on behalf of their clients, many who are small business owners and might not even be aware of how the relief plan could benefit them. “What really concerns me is that when I turn on the TV or read the paper, I’m not seeing enough about the Paycheck Protection Program,” Wetzel said.
More than 360 people have registered for an April 3 webinar titled “Coronavirus Emergency Funding for Advisors - How to Manage Cash Flow” by Succession Resource Group, a consultant to RIAs that also works on succession plans, mergers and acquisitions. It’s a telling level of interest, considering the consultant’s annual M&A review, which it spends weeks promoting beforehand, attracts about as many attendees. In just days, a webinar on cash flow did the same.
“Everyone seems to be preparing for the worst and hoping for the best, and not the reverse,” David Grau Jr., founder and CEO of Succession Resource Group, said.
Although, Grau said his company knows advisors are interested in the CARES Act either because clients are asking about it already, or they anticipate clients will. He agrees with Wetzel that advisors should be a source of information for clients on the relief plan, even proactively reaching out to clients who are small business owners.
SkyView, Succession Resource Group, wealth managers, custodians and other institutions have responded quickly to the CARES Act and made themselves resources for financial advisors but that’s not the case in all industries.
Grau recently got a call from a friend who owns a successful machinist tool shop. He told Grau he was disappointed in the relief package; it wouldn’t help him enough and he was worried about his business. His friend wasn’t even aware of the Paycheck Protection Program.