Show me the money!
It’s been a month since most states issued ‘stay at home’ orders to its citizens. Since then businesses have shut down, schools have closed, people have stopped hugging each other, and my mother figured out how to use Zoom. Now families that used to see each other only at dinner time are spending 24 hours a day studying, eating, working and watching Netflix together. For some, this family time has been a silver lining, while others are resisting the urge to choke out their partner for slurping his coffee.
These social distancing practices are for the good for our community, we are told, and for the most part, we are happy to comply especially considering the astounding numbers of Covid-19 cases and resulting deaths that we have seen on a daily basis over the past month, especially in New York City where I live. While we are trying to reconcile the public health threats of this virus and keep ourselves and our loved ones safe, we are also struggling with the potentially severe and frightening economic impact of the shut-downs.
Over the past few weeks I’ve had conversations with anxious friends and clients who were laid-off from jobs, furloughed or had salary reduced, and small business owners who were forced to shut down. The common thread of these discussions was the underlying fear and uncertainty that this pandemic has thrust upon our society. People are unable to pay rent or other bills, they are cutting back on necessities and doing away with splurges, because no one knows how long the lingering effects of the pandemic and shut down will last.
In an effort to shore up failing corporations and industries, businesses, and individuals, Congress stepped in last month to pass the Coronavirus Aid, Relief, and Economic Security Act, the “CARES Act.” This large and comprehensive piece of legislation provides significant stimulus to many corners of the economy; at $2.2 trillion it equals about 10% of US GDP and is the largest amount of government spending since World War II. Undoubtedly, the need for this funding exists in a big way; however the uneven disbursement of these funds has left many individuals and small businesses empty-handed and discouraged.
The CARES Act expanded unemployment insurance benefits in various ways. It provides an additional $600 in addition to the weekly state amount to those who are eligible; it expanded eligibility to independent contractors, sole proprietors and gig workers; and it extended benefits an additional 13 weeks. While some recently laid off workers have applied and received their benefits, a large amount of applicants in some states like New York—which has received 1.2 million unemployment claims since the shutdown began- have yet to see a penny of it hit their lean bank accounts. Applying as a sole proprietor or 1099 worker has its own share of headaches as individuals have to complete additional paperwork and first file for and be denied unemployment insurance before filing for Pandemic Unemployment Assistance (PUA).
During NY Governor Cuomo’s daily press conferences, the unemployment difficulties have come up and the response is always the same: the Department of Labor is inundated with applications. Please be patient. But as frustrated friends and clients have said, it’s hard to be patient when bills and rent are due every month.
Small business funding blues
The CARES Act also provided $349 billion in funding for small businesses in the form of forgivable loans and expanded Small Business Association loans. On April 3, when the Paycheck Protection Program (PPP) began accepting applications for potentially forgivable loans, banks and lenders were inundated with applications yet had very little direction and instruction from the Treasury. By noon on Thursday April 16, only 14 days after the program began accepting applications, lenders had received 1.6 million applications in total and the funds had all been allocated.
What businesses received loans under the PPP? The big winners were in construction, technology and health care. Large hospitality businesses like Ruths Chris Steakhouse and Pot Belly also received loans while many mom and pop businesses were shut out. Other businesses that were granted EIDL loans or advances through SBA are also still waiting on those funds. Fortunately Congress should be acting soon to provide a second round of roughly $300 billion in funding for the PPP.
I have several friends and clients who are small business owners who applied for a PPP loan but didn’t receive funds this time around, and are also eligible to apply for Pandemic Unemployment Assistance but can’t get through the system to complete their claim. Along with the fear of having to shut down their business for good, they are frustrated and discouraged that they are unable to get the benefits to which they are entitled. From the vantage point of many Americans, the situation is dire and the future seems bleak.
Fortunately things change, and without being blindly optimistic, I strongly believe that life will be a little different in a month-in a good way. Until then here are some tips to help you through these difficult times:
- It’s ok to be discouraged but don’t stop being proactive.
- If you applied for a PPP loan, stay in touch with your lender and make sure your application is still in the queue. If you haven’t applied but think you might be eligible, reach out to your bank to start the process.
- Research other types of funding like grants and loans offered through SBA, your state, private companies and the US Chamber of Commerce.
- If you are trying to complete your unemployment claim, keep calling and stay informed by joining Facebook groups focused on helping applicants through the process. In some states direct messaging to Departments of Labor via Twitter have sparked return calls.
- In the meantime, look for other sources of funding to make ends meet.
- Emergency funds were made for these unprecedented times so don’t feel guilty if you are dipping into your savings.
- You know your rich single aunt who gallivants around the world and has an Instagram worthy of Conde Nast Traveler? She might be able to loan you some money now that flights are grounded and parties are cancelled.
- If you don’t have a rich single aunt, remember that the CARES Act allows you to take a penalty-free distribution from your IRA or retirement account provided you can show Covid-related hardship. The distribution will be subject to income tax but this tax can be paid over the next 3 years. You can also take a loan out of your 401(k) up to $100,000 but always keep these retirement distribution options as a last resort.
- Don’t forget to take care of yourself
- Stay healthy and active. Socially distanced walks around the neighborhood or bike rides with family or neighbors does wonders to lift the spirits, as does a friendly fire pit and cocktail hour in the yard. People have been cooking more at home, sharing meals together, practicing yoga with their significant other or with friends via Zoom. Don’t stop doing these things—even after this pandemic is over (except for the Zoom happy hours—in-person is always preferable!)
- Do something creative. Write, paint, learn Italian, bake bread—these activities will definitely not add funds to your bank account or revive your business, but may get your mind off these stresses, if only for 30 minutes. Consider it therapy or ‘self-care’ which everyone needs these days.
- Don’t hesitate to reach out to your financial advisor. Being an advisor is based on relationships not transactions, and it’s not about how much money you have. Financial advisors can help you invest your money and set up an emergency fund, but especially in times like these we can also answer questions, help you do some research, get creative with your budget or just be there when you want to vent.
Remember that the CARES Act was comprehensive in size and scope and was bound to hit potholes, but if you are eligible for relief under the Act you should receive it. It is a matter of time-and for many people and businesses, time is of the essence—but let’s not lose hope.
Better days are around the corner.
Lena Rizkallah, JD, CRPC® – Conte Wealth Advisors