With many of us settling into a “new normal” that is now limited to the four walls of our homes, we have witnessed some important developments in the economy and the markets this week.  Below is a summary of what took place.

What Happened in the Markets?

The week ending Thursday, April 9th, was an entirely different story as the S&P 500 advanced 12.1% to record its best week since 1974.

The Week in Review Graph - 4.10.20The upward move in stock prices powered through the drumbeat of another 6.6 million workers filing for unemployment benefits, adding to the more that 10 million who have filed since the coronavirus pandemic began.

Optimism outshined concerns over the economy as the Federal Reserve announced newly created and expanded programs to provide a total of $2.3 trillion in loans to support businesses, cities and states.  This week, the central bank also shared more details about its Main Street Lending Program, which is anticipated to supply up to $600 billion in loans to small and medium sized businesses.

In his address on Thursday, Fed Chairman Jerome Powell said that he believes the economy will bounce back once the pandemic subsides and more Americans can go back to work. “There is every reason to believe that the economic rebound, when it comes, can be robust,” he said, citing that we started the pandemic on strong economic footing and that should help the recovery effort.

Retirement Provisions in the CARES Act

If you are a current or soon-to-be retiree, there are a few retirement provisions to keep in mind regarding the CARES Act and planning for 2020:

  • Required minimum distributions (RMDs) have been suspended for 2020. This provision allows retirees to defer income tax on withdrawals they would otherwise be required to pay tax on.
  • No penalties for early withdrawals up to $100,000 from IRAs or other retirement plans and accounts. Income taxes owed on these withdrawals may be spread out over three years from distribution dates.  Alternatively, withdrawals may be rolled back into retirement accounts within three years
  • Donors can now deduct 100% of cash gifts to public charities against their 2020 adjusted gross income. The old deduction rules will still apply to cash gifts to private foundations.

Breaking Down Three Provisions for Small Businesses

As we’ve shared previously, the CARES Act contains $350 billion in funding for struggling small businesses. Below is a break-down of three of the available funding options:

  1. Paycheck Protection Program
  2. Expanded EIDL Program
  3. Employee Retention Credit

1.  Paycheck Protection Program (PPP)

Designed to help companies maintain their payrolls through June 2020, the PPP allows eligible companies to borrow up to 2.5 times their average monthly payroll costs. The maximum interest rate on these loans is 4% and may be forgiven if certain conditions are met. There is also no personal guarantee or collateral required, and payments are deferred for six to 12 months.

What are the eligibility requirements?

  • Must be a business or nonprofit with fewer than 500 employees, including full-time and part-time workers; self-employed workers, sole proprietors, freelancers, and gig economy workers are also eligible.
  • The business or nonprofit must have been operational before February 15, 2020

What are the loan forgiveness requirements?

  • The loan must be used to cover eligible expenses, including payroll costs, employee benefits, rent, and utilities incurred before February 15, 2020
  • The business or nonprofit must not decrease wages or salaries by more than 25% for any employees that made less than $100,000 in 2019
  • The business or nonprofit must maintain its full-time employee headcount for at least eight weeks after the loan is dispersed

2.  Expanded Economic Injury Disaster Loan (EIDL) Program

The CARES Act also includes an expansion of the EIDL, which the Small Business Administration has offered for some time. This program provides loans to small businesses and nonprofits in amounts of $2 million, with loan terms that can last up to 30 years. The interest rate is 3.75% for small businesses and 2.75% for nonprofits. An emergency request can be made for a one-time advance of $10,000. This advance is expected to be available within three days of an application being approved and does not have to be repaid.

Businesses and nonprofits that receive a disaster loan can also borrow through the PPP as long as the loans are used for different expenses.

3.  Employee Retention Credit

Businesses that were fully or partially shut down, or whose gross receipts declined by more than 50% when compared to the same quarter from 2019, are eligible for a refundable tax credit. The credit is equal to 50% of qualified wages, up to $10,000 with caveats, and is only available for wages paid from March 13 to December 31, 2020.

What Do I Need to Apply?

Here are the documents and information you will need on-hand when applying for these programs and credits:

  • Average monthly payroll
  • Number of employees
  • Business tax identification number
  • Purpose of the loan
  • A list of owners with more than 20% equity in the company

The COVID-19 pandemic has impacted every sector of business, so if you plan on applying for any of these programs or credits, do so as soon as possible. The $350 billion fund is available on a first come, first served basis and has the potential to be exhausted.

Visit this website to learn more and how to apply, https://www.sba.gov/funding-programs/loans/coronavirus-relief-options.

What’s Happening on the Policy Front?

  • Less than two weeks after the enactment of the CARES Act, Congress is now debating an interim package that would provide an additional $250 billion in aid for small businesses. The request is in response to lawmakers’ concerns that the original $350 billion program would run out of money.
  • Senate Majority Leader Mitch McConnell attempted to approve the additional funding during a procedural session on Thursday, but Democrats objected, requesting that an additional $100 billion for hospitals and $150 billion for state and local governments be included in the bill. Republicans blocked the Democrats’ proposal, leaving the fate of the interim package in flux.
  • Further down the road, lawmakers have already discussed introducing another major stimulus package that would build on top of the recently enacted CARES Act. We’ll keep you updated as the situation changes.

If you have any questions about our current environment or want to discuss your personal financial situation, please do not hesitate to contact us. We are all available to address questions, concerns, or just to touch base!

Sending along very best wishes for good health and personal safety,

HARRIS FINANCIAL ADVISORS