Over the past week, there was more action from the federal government in response to the COVID-19 pandemic and its impact on the U.S. economy. Below is a summary of the most significant developments.

What Happened in the Markets?

After back-to-back weeks of gains, the S&P 500’s momentum stalled as the index declined 1.3% for the week ending Friday, April 24th.

S&P 500 Index – As of April 24, 2020

Week in Review 4.24.20 Graph-FINAL

As governors across the country contemplated how to re-open their states and parts of Europe began to cautiously emerge from lockdown, energy markets were in disarray as oil prices fell below zero for the fist time in history. The price per barrel of West Texas Intermediate crude for May 2020 delivery went negative as demand for oil shriveled with large swaths of the global economy shut down. Sellers were willing to pay buyers to take delivery of oil in May because there were precious few storage facilities, pipelines, refineries and oil tankers available to store the excess supply of the commodity. The prices for barrels of oil to be delivered in June, July and August remained positive suggesting markets anticipate an uptick in demand, although prices generally remained below estimated break-even points for global oil producers. Another 4.4 million people applied for unemployment last week, bringing the total number of unemployment claims to about 26 million over the last five weeks.

Policy Update: New Bill Passed to Support COVID-19 Relief Efforts

To help stabilize the U.S. economy, Congress passed a $484 billion bill to restock the exhausted Paycheck Protection Program with $310 billion and the Economic Disaster Injury Disaster Loan (EDIL) program with $60 billion. The bill also extends $75 billion to hospitals and health-care providers and $25 billion to support COVID-19 testing efforts. President Trump has expressed his support for the package and is expected to sign it shortly.

More on the Paycheck Protection Program (PPP) – Loan Forgiveness

Business borrowers who comply with the following provisions stipulated under the CARES Act are eligible to have 100% of their loan forgiven:

1. Borrowers must use at least 75% of the loan on payroll costs.

According to the U.S. Treasury Department, eligible payroll costs include salaries, wages, commission or tips. They also include employee benefits, such as medical insurance and retirement accounts, as well as state and local taxes assessed on compensation.

2. The remaining balance of the loan must be used on permitted non-payroll expenses incurred prior to February 15, 2020.

Permitted non-payroll expenses include interest on mortgage obligations, rent under lease agreements and utilities, such as water and electric.

3. The borrower cannot reduce their number of full-time equivalent (FTE) employees.

When deciding on the number of FTE employees, borrowers have one of two options: determining the average number of FTE employees between February 15, 2019 and June 20, 2019, or the average number between January 1, 2020 and February 29, 2020.

4. The borrower cannot reduce the wages of their employees by more than 25%.

This provision does not include employees who made more than $100,000 in 2019.

5. The borrower must spend the loan eight weeks from the moment it is funded by the lender.

Lenders must fund any PPP loan within 10 days of approval.

What happens if these conditions are not met?

If any of these conditions are not met, the loan forgiveness amount will be reduced. Any portion of that loan that isn’t forgiven must be repaid over two years at an interest rate of 1%.

How do I actually apply for loan forgiveness?

Borrowers apply for loan forgiveness with the lender of their loan. The lenders have 60 days to review the application and make a determination.

Are there requirements for proper tracking and documentation?

Currently, there are no set guidelines in terms of how the funds from PPP loan should be tracked. Borrowers may want to consider setting up a separate bank account for PPP loan funds. Proper tracking and documentation will be simplified if qualified expenses are paid directly from this new account or if this account is used to fund operating accounts. Ultimately, meticulous tracking and documentation of PPP expenses will increase the chances of loans being forgiven.

A Closer Look: The Guidelines for Opening Up America Again

Recently, President Donald Trump released a three-phased approach to reopening businesses and public establishments amid the COVID-19 pandemic. The steps are intended to serve as a guidepost for state and local officials to reopen their economies and bring Americans back to work following state-wide shutdowns and shelter-in-place orders.

It’s important to note that the guidelines do not include target dates for meeting each “phase” of the plan. Officials and public health experts have said that restrictions could be put back in place if regions see a resurgence in new cases. Here is a quick overview of each phase:

Phase One: This phase would begin in communities where there is a downward trajectory in reported new cases within a 14-day period; hospitals would also need to show they can treat all patients without resorting to crisis care, and there would need to be a reliable testing program (including antibody testing) in place for all frontline health care workers.

Even if communities meet these guidelines, the most vulnerable citizens, such as the elderly or individuals with pre-existing health conditions, would still be required to shelter in place.

So long as they maintain appropriate social-distancing measures, non-high-risk citizens would be able to return to work, and venues such as sit-down restaurants, sporting arenas and places of worship would be able to reopen under more strict “physical distancing protocols.” Gyms would also reopen and elective surgeries would resume, though bars and schools would remain closed, and hospitals and senior living centers would still prohibit visitors.

Phase Two: Once communities enter phase one and there is no rebound in the number of new cases, phase two would commence, under which schools and organized youth activities would be allowed to reopen. Bars would also be allowed to reopen, but only under what the guidelines call “diminished standing-room occupancy.” High-risk individuals would still be required to shelter in place.

Phase Three: If communities have entered phases one and two without a rebound in new cases, then phase three would commence. Under phase three, high-risk individuals would be able to resume public interactions, but they would need to continue practicing social-distancing measures. Employers would be able to resume unrestricted staffing of workplaces, while large public venues would be allowed to operate under limited social-distancing protocols. Hospitals and senior living centers would also reallow visitors.

In addition to outlining the three phases, the guidelines mandate the establishment of “core state preparedness” measures. This means states will be required to show they have adequate testing and screening processes; adequate supply of protective gear and medical equipment; and plans to accommodate more beds for intensive care before they reopen their economies.

What Happens Next?

Now that the guidelines have been released, many state governments are starting to shape their own plans for adhering to the tiered approach, with the federal government recommending that officials work on a “regional basis” to move through the recovery process.

If you have any questions about the information above or would like to speak about your personal financial or business situation, please reach out to our team. We wish you continued health, safety and security during this time.

Sincerely,

Harris Financial Advisors

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