Overview of COVID-19 Financial Relief Programs
On Friday, March 27th, the President signed the $2 trillion CARES Act into law. This act was designed to help those financially impacted by the coronavirus. The CARES Act is just one in a series of new pieces of legislation that has been enacted over the past week that may directly benefit you.
Below, we've summarized various financial programs that are available to agents, small business owners, and Americans.
• CARES Act stimulus checks will go out in April to all who qualify. To qualify, you must not be listed as a dependent on anyone’s tax return, you must have filed 2018 or 2019 taxes, and you must have income below a certain threshold.
• Staff members who have had their pay or hours cut can apply for unemployment insurance through their state, even if they are still working.
• Agents have access to three programs - including the Pandemic Unemployment Assistance (PUA) run through state unemployment agencies, the Paycheck Protection Program (PPP), and the Economic Injury Disaster Loans (EIDL).
The PUA is a temporary federal boost to unemployment payouts designed to help those facing unemployment replace their check in the short-term. The PPP is a forgivable loan as long as certain conditions are met. The EIDL is a low-interest rate loan that allows you to receive a $1,000 advance per employee within three days of filing an application. The advance does not need to be repaid. More details on each of these will be covered below.
We're still waiting for states to issue guidelines on how agents and other independent contractors and small business owners can qualify for the PUA program, and for the SBA and its lending partners to create the PPP application. You can apply for EIDL loans starting now (see below.)
Financial Relief Program Details
1. Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Stimulus Checks
Over 80% of Americans can expect to receive a stimulus payment from the federal government. In April, the IRS will provide $1,200 payments to single individuals with adjusted gross incomes (AGI) up to $75,000, or head of households with AGI up to $112,500. Married couples with AGI up to $150,000 will receive payments of $2,400. Each qualifying dependent under 17 will add an additional $500 to the payments above.
Payments will be reduced if your AGI is above the limits stated above and be completely phased out for single filers with AGI at or above $99,000; $136,500 for head of household filers; or $198,000 for those filing jointly.
If you're a citizen or resident alien who has filed taxes for either 2018 or 2019 and you're not listed as a dependent on anyone else’s tax returns, you're eligible to receive payments. The government will use your 2019 tax return (if filed, otherwise, your 2018 tax returns will be used) to verify your AGI. You will receive your stimulus check either as a direct deposit (if the IRS has this information from a 2018 or 2019 refund) or via a physical check. If you didn’t file taxes for the past two years, the IRS recommends you file 2018 taxes as soon as possible to qualify for a stimulus check.
2. State Unemployment Insurance; Pandemic Unemployment Assistance (SUI / PUA)
Each state administers its own unemployment insurance program. The CARES Act includes a new Pandemic Unemployment Assistance program expanding benefit eligibility to include independent contractors, the self-employed, business owners and “gig workers” (i.e., Uber drivers, musicians, etc.) who are unable to work as a direct result of the COVID-19 pandemic and are ineligible for ordinary unemployment insurance. As agents, you would qualify as independent contractors.
You can receive PUA benefits even if you are not completely unemployed but have demonstrable lost income. We are waiting for states to provide further guidance on how independent contractors and other small business owners can qualify for the PUA benefits. Staff qualify for unemployment or PUA benefits if they are unable or unavailable to work or are working less than customary hours.
The benefit amount depends on your state and previous income. The CARES Act provides a temporary emergency increase of $600 per week up to July 31, 2020, in addition to what you would qualify for from your state program. In California, this means weekly payments would range from $766.50 to $1,050
3. Paycheck Protection Program (PPP)
The CARES Act has created the Paycheck Protection Program as an expansion of the Small Business Administration 7(a) small business loan program. This is a no-cost, forgivable, non-taxable loan without a personal guarantee. Sole proprietorships, independent contractors, self-employed individuals, and businesses with fewer than 500 employees are eligible for the PPP. Funds can be used to maintain payroll and cover other obligations (i.e., mortgage expenses, rent, insurance, utilities, and interest on any other debt obligations during the covered period.)
Who is eligible? All real estate agents, and 1099 independent contractors.
What it Covers - for employers; total payroll costs include salaries, wages, and commissions paid (capped at $100,000 per individual); payments for vacation, sick or family leave; separation payments; payments made for group health care benefits including premiums; and payments of all state or local payroll taxes. Applications are now being accepted (as of April 3, 2020).
What it covers - for sole proprietors, independent contractors, or self-employed; payroll costs include the sum of payments for compensation, or income including net-earnings up to $100,000. Applications will be accepted beginning on April 10th, 2020.
• Independent contractors must submit their 1099-MISC
• Sole proprietorships must submit the schedules from their tax returns showing income and expenses
• Small businesses (i.e., S-corps) must submit payroll tax filings
The maximum benefit amount you can receive is 2.5 times the average monthly payroll costs incurred during the year prior to the loan date (or since the business was founded.)
To calculate your maximum benefit if you have no paid staff: Take your 1099 income over 2019 (maximum of $100,000) and divide this number by 12. Multiply the result by 2.5. This is your maximum loan amount ($20,833.33 if your income was > $100,000.)
To calculate your benefit if you have paid staff (W-2 or 1099): Take your total payroll (including yourself) over the past 12 months (capped at $100,000 for an individual) and divide it by 12. Multiply the result by 2.5.
The Small Business Association (SBA) will forgive loans if all employees (if any) are kept on payroll for eight weeks and the money is used for payroll, rent, mortgage interest or utilities - but at minimum, 75% of the forgiven amount must be used for payroll.
The loan is made at 1% interest with maturity in two years. Payments will be deferred for six months. There is no cost to apply, no personal guarantee required, and no taxable event at forgiveness.
Loan forgiveness will be equal to the amount the borrower spent on the following during the 8-week period beginning on the date of loan origination: payroll costs (using the definition above), interest on mortgage obligations, rent on leases, and payment of utilities.
If any loan amount is not forgiven, the maximum interest rate will be 4% with a 10-year maximum maturity date and an option to defer principal and interest payments up to one year.
This program will be available through June 30, 2020. You can apply through any existing SBA 7(a) lender, federally insured depository institution (aka a bank) or federally-insured credit union. It is in your best interest to apply through your existing bank/credit union. Some lenders are not yet ready to begin accepting applications, so please check with your lending institution on availability timelines. If you have a hard time finding a bank that can support you, lendio.com, a broker that helps submit applications to participating banks, may be able to help.
4. Economic Injury Disaster Loans (EIDL)
The EIDL is a low-interest loan available to sole proprietorships, independent contractors, self-employed, or businesses with under 500 employees. Borrowers can apply for both a PPP and EIDL loan as long as they are used for separate purposes, i.e. EIDL can be used to repay obligations that cannot be met due to revenue loss.
EIDL loan amounts and repayment terms are determined on a case-by-case basis, but interest rates for independent contractors are currently 3.75%. You may apply for a COVID-19 Economic Injury Disaster Loan now by filling out the application here.
For more information on the above, please refer to the SBA’s Small Business Guidance & Loan Resources site.
What Should I do Now?
Review all your available options and consult with a CPA or your other finance/tax professional to determine which option or options are best suited for you. If your pay has been reduced, you should consider applying for unemployment insurance through your state.
For agents, if you believe you will have an economic loss, you should consider applying for your state’s Pandemic Unemployment Assistance once they offer details on the program. Additionally, you may consider applying for the Economic Injury Disaster Loans if an immediate non-repayable $10,000 will be of greater benefit than the forgivable amount you anticipate qualifying for under the Paycheck Protection Program.
Additionally, it's recommended that you reach out to your creditors or servicers (student loans, credit cards, car payments, mortgages) and see what forbearance or other relief programs are available. Borrowers with federally backed mortgages can request loan forbearance of their payments (without penalties, fees, or interest) for up to 360 days - or 30 days for multi-family properties over five units.
The Last Word with Kevin Cruz - Founder of Kinetic Real Estate
The best way to learn in times of uncertainty is to look to small business owners to see how they're managing their way through this unprecedented situation. Below, Kevin Cruz, the Founder of Kinetic Real Estate, shares how COVID-19 is impacting his business today and provides insight on what he's doing to keep his team informed and to prepare for the future.
In regards to the financial relief programs being offered, Cruz says, "I see the financial relief package offered by the US government to small businesses as a great thing. I feel extremely blessed that lawmakers are putting effort into providing financial relief to small businesses. As a real estate business owner and a partner of four other small businesses, I have personally applied for the financial relief package." Cruz understands that with a flood of applicants, it may take some time to get approved, but he says, "I'm very optimistic and believe something positive will result from it."
One of the most important things he's focused on is staying up to date with the news cycle and with information on what relief options are available to small businesses. Both Cruz and his team have been carefully monitoring various news sources, including Politico, Inc.com, SBA.gov, and financial institution websites for updates. He says, "I also speak to our CFO, Wendy Roberts, who is the Founder and CEO of Spectrum Business Financing, Inc. and is a SBA loan specialist. She provides us constant updates, which I'm extremely grateful for."
As for how he's working to provide information to his team, Cruz says, "Compassionate leadership with my team and 200% communication with my business partners is key. I keep them informed every step of the way with information on what's happening and what's available."
Cruz is also focused on protecting himself and his businesses in this time of economic uncertainty. He says, "We're currently in a state of 'fear of the unknown.' Therefore it’s very important to have a positive mindset and to focus on forward thinking."
Cruz takes a three-step approach to make sure he's as prepared as possible to take on any changes that arise as we navigate COVID-19. First, he constantly educates himself, his team, and his business partners. Second, he regularly analyzes reputable economic data, rather than making assumptions on what he thinks may happen as time goes on. And third, he focuses his efforts on preparing himself and his team to pivot in any way necessary to accommodate the constant evolution we're up against today.
Huge thanks to Kevin Cruz for sharing how COVID-19 is impacting his day-to-day interactions with his team and business partners and for sharing his insight on what he's focusing on to ensure a bright future.