SBA Paycheck Protection Program

Information and developments are flying fast these days. With the recent passing of the Coronavirus Aid, Relief, and Economic Security Act (CARES), another SBA program has been made available for businesses to gain much needed access to working capital.

The Paycheck Protection Program, part of the CARES Act, provides a path for businesses, through a participating SBA Lender/Bank, to be able to apply for funds as defined in the program.  The loan window will open up on Friday, April 3, 2020.  It is advised to wait until your bank sends the application as those applications may be adjusted right through the last minute.  The basic elements of the program are:

·        Must have 500 or fewer employees (beware of aggregation rules)

·        Maximum Loan will be $10 million

·        The loan can be forgiven if used for:

o   Payroll costs

o   Rent

o   Utilities

o   Mortgage/Existing Debt as defined

o   Other designated costs

o   Due to high subscription expectation, not more than 25% of loan forgiveness can be for non-payroll costs

·        Provisions for employee retention as defined.  Caps re: highly compensated employees

·        Debt forgiven will NOT be included as taxable income for federal tax purposes

The links below are official US Department of Treasury links (they are safe).

Department of the Treasury Press Release on the Paycheck Protection Program

Paycheck Protection Program - Borrowers Info Sheet

Paycheck Protection Program - Lenders Info Sheet

SBA Disaster Relief Loans

At the end of January, when I wrote about the possibility of a recession, I obviously had no idea anything like this would happen.  It turns out those graphs were solid evidence we weren’t far away from whatever factor may become the trigger for difficult times in the near future.

So here we are, dealing with a completely new set of circumstances.  The main objective for businesses right now is to make it to the other side of this.  It will hit different industries in different magnitudes and at different times, but all will be hit to some extent.

The government is rolling out new assistance programs as the days roll on, the one I wanted to get out to everyone now is the U.S. Small Business Administration (SBA) is offering low-interest disaster loans up to $2,000,000 for affected businesses.  The application process is online and can be found by clicking this hyperlink.

I strongly encourage business owners to immediately draw down on their lines of credit now to ensure liquidity for at least the next three months (maybe draw all available capacity).  I also suggest for those feeling they may need additional working capital sometime in the next three to six months or so, to apply for this SBA loan program and get in line.

The name of the game right now is to preserve capital and make it past this event.  Consider talking with your business partners, vendors, landlords, etc. as to how they can help your business if you feel your business will be significantly adversely affected.

This too shall pass.  It will pass better for those who execute well and make good decisions now to mitigate the impact.

Some more info...

SBA Disaster Loan Fact Sheet

SBA 3 Step Guide

Consumer Confidence, Unemployment Rate and Recessions

Last month I attended an economic forecast event and a few of the slides really caught my attention.  As business owners and advisors we are always looking forward, around corners, etc. in an attempt to see what lies ahead in order to make sound, prudent business decisions.  The following slides both contain shaded areas denoting periods of recession in the U.S. The first slide below is the Conference Board Consumer Confidence Index.  The index basically assesses consumers present feelings about the economy as well as their outlook for business and employment over the next 6 months; how they feel they will fare economically.

This next chart shows the actual unemployment rate against the natural rate of unemployment.  The natural rate of unemployment is the premise that even when the economy is at full employment, there is still a segment of the workforce who are unemployed.  What the chart indicates below is that the economy is so robust currently that organizations are really tapping deep into the available pool of workers, causing actual unemployment to dip below the natural rate.  You can see clearly in the chart that when this happens usually within a few years of going below the natural rate a recession typically begins (again, the shaded areas).  We've been below the natural rate for a few years now, and by many measures this economic expansion is long in the tooth.  We've also heard that expansions don't die of old age, it's generally some catalyst, often times monetary policy, that triggers a recession.

This time could be different/unique.  Perhaps it already is.  We have historically low interest rates that generally cause capital to move into risk assets and foster business investment.  We have technology advances that contribute to greater efficiency, productivity and profit margins.  Our clients 2019 calendar year results are rolling in with, in some cases, record level profits and in most cases healthy profits.  The business outlook for our clients is also strong, looking ahead to 2021 as well.  As always, remain vigilant, capitalize on opportunities and use this strength in the economy to shore up balance sheets.  This balance sheet strength is always a welcome position to be able to withstand the eventual slowdown that will come at some point.