RIAs should be gathering the information necessary to apply for loans under the $2.2 trillion coronavirus aid package, even while lenders await the final details on how the new stimulus law will be implemented, said a bank executive Wednesday.
Mike McGinley, executive vice president of Live Oak Bank, said some details are still being worked out by the Small Business Administration for the loans, applications for which should be available Friday, but most provisions are known. RIAs who want to apply for the forgivable loans should quickly gather their business financial information as of the end of 2019 or through the first quarter of 2020 in order to be prepared to fill out applications as soon as they are available.
RIAs, who are sole practitioners, should have their 2019 tax reports ready, if they have them, or their financial information, if they have not filed 2019 taxes as yet, he said.
McGinley offered the advice and other tips during a webinar called “CARES Act: Relief for RIAs and Clients,” sponsored by DeVoe & Co.’s CapitalWorks. The webinar was held to explain the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which contains nearly $350 billion for small business loans.
“This is an important opportunity for all RIAs to consider. If you are looking for funds, you should get your information in line now,” said Brad Grubb, managing director of DeVoe & Co. There is a $350 billion pot of money, known as the Paycheck Protection Plan, for small business, so the money will run out and applications should be submitted quickly, added McGinley.
To be eligible for the small business loans, the business has to have been operating before February 15 and must have fewer than 500 employees. Most RIAs will qualify, McGinley said.
The loan can equal 2.5 times the firm’s monthly payroll. Salaries of up to $100,000 a year can be considered in the loan calculations. For those employees who are paid more than $100,000 annually, only the salary up to $100,000 is used in the calculations. Bonuses, commissions, benefits and officers’ compensations are included in the payroll calculations.
For the businesses that have to repay the loans, repayment is delayed for six months and the businesses then have 18 months after that to repay. The interest rate on the loan has been set at 0.5%. But the loan will be forgiven if the same number of people are employed by the firm eight weeks after the loan is granted.
There are no loan fees, and no collateral or personal guarantees are required. As of now, the program is open until June 30. The loan funds are not taxable, McGinley added.
“Lenders are still figuring out the rules right now, but we hope to have the answers by Friday,” he said.