CARES Act provides investors, business owners with opportunities - WBKB-TV

CARES Act provides investors, business owners with opportunities - WBKB-TV

CARES Act provides investors, business owners with opportunities - WBKB-TV

Posted: 17 Apr 2020 04:19 PM PDT

ALPENA, Mich. —  One financial analyst says the CARES Act offers a ray of hope during this time of health and financial crisis.

Pam Kirchoff, with Edward Jones  in Alpena, says the legislation provides investors and business owners with important opportunities to consider and potentially maximize.

For example, Kirchoff says there are several provisions of the CARES ACT that may be of particular benefit to investors:

Direct payments – Individuals will receive a one-time payment of up to $1,200; this amount is reduced for incomes over $75,000 and eliminated altogether at $99,000. Joint filers  will receive up to $2,400, with this amount reduced for incomes over $150,000 and eliminated at $198,000 for joint filers with no children. Plus, taxpayers with children will receive an extra $500 for each dependent child under the age of 17.

"One possible idea for this money is to use it as part of an emergency fund," Kirchoff says. "By putting it in a low-risk, liquid account, you'll have it available when you need it for any large, unexpected expenses during the next several months."

Expanded unemployment benefits – The CARE Act provides $250 billion for extended unemployment insurance, expands eligibility and provides workers with an additional $600 per week for four months, in addition to what state programs pay. Unemployment benefits will also be extended through Dec. 31 for eligible workers. And the provisions also cover the self-employed, independent contractors and "gig economy" workers.

"These benefits can provide a lifeline to many workers," Kirchoff says. "And they may be able to help people avoid liquidating some long-term investments earmarked for retirement just to meet their daily cash flow needs. So, in that sense, the money can help individuals feel more secure today and in the future."

No penalty on early withdrawals – Typically, individuals must pay a 10% penalty on early withdrawals from IRAs, 401(k)s and similar retirement accounts. Under the CARES Act, this penalty will be waived for individuals who qualify for COVID-19 relief for distributions up to $100,000 in aggregate from IRAs and plans that allow COVID-19 distributions. Withdrawals will still be taxable, but the taxes can be spread out over three years.

"Waiving the 10% penalty is a positive move during times like this," Kirchoff says, "but we would still advise our clients that, if they really have a need for the money, to look at other sources first, because IRAs and 401(k)s are long-term vehicles designed to help support people during their retirement years."

Suspension of required withdrawals – Owners of traditional IRAs and 401(k)s are usually required to start taking withdrawals from these accounts once they reach 72. The CARES Act waives these required minimum distributions for 2020.

"Of course, if people need the money, they can still tap into these funds," Kirchoff says. "But, if not, this provision gives the money even more time to grow on a tax-deferred basis.

Increase in retirement plan loan limit – 401(k) investors who qualify for COVID-19 relief can now borrow up to $100,000 from their accounts, up from $50,000, provided their plan allows loans.

"We recommend that you exhaust some of the other provisions associated with the CARES Act first, such as mortgage and student loan relief, or using the direct payment to bridge the gap on current expenses before taking a distribution or loan from your retirement account," Kirchoff says. "If you decide to take a withdrawal or loan we recommend you work with your financial advisor to consider developing strategies to recontribute/pay back these funds over time to reduce any long-term impact to your retirement goals."

Another key part of the CARES Act provides $349 billion to help small businesses – those with fewer than 500 employees – retain workers and avoid closing up shop. A significant part of this small-business relief is the Paycheck Protection Program. This initiative provides federally guaranteed loans to small businesses that maintain their payroll during this emergency. Significantly, these loans may be forgiven if borrowers use the loans for payroll and other essential business expenses (such as mortgage interest, rent and utilities) and maintain their payroll during the crisis.

"Small businesses are really the economic backbone in many of the communities in which we have our offices," Kirchoff says. "I would certainly encourage our clients who are business owners, and any business owner, to explore this opportunity."

Ultimately, Kirchoff says, the CARES Act may be seen as another steppingstone on the road back to recovery, from a financial standpoint.

"We've still got some major challenges, but it's encouraging to see our lawmakers coming together to offer some concrete steps to provide relief to investors and business owners," Kirchoff says. "We all need to work together to get through this challenging time, and I'm confident we'll do just that."

National economies under duress; a plea for help from retail - Turn to 10

Posted: 17 Apr 2020 08:30 AM PDT

[unable to retrieve full-text content]National economies under duress; a plea for help from retail  Turn to 10

Top SBA Lenders Could Benefit From Coronavirus Stimulus - The Motley Fool

Posted: 23 Mar 2020 06:46 AM PDT

Whether through the $1 trillion stimulus package or a separate bill, it is clear that the U.S. Small Business Administration is about to get a whole lot more funding authority in order to help businesses affected by coronavirus. President Trump has already instructed Congress to increase the SBA's funding authority by $50 billion, although when it is all said and done it could be much more.

The SBA has many different loan programs, but the fundamental idea behind all of them is that the government will usually guarantee anywhere from 50% to 90% of these loans, encouraging lending to riskier borrowers. The new money given to the SBA is going to be backed heavily by the government, probably in the realm of 90% or 100%. It will allow the SBA to lend it out to businesses for more widespread use and the loan amounts will likely be greater. This should be a boon to banks that are SBA-preferred lenders, such as Live Oak Bancshares (NASDAQ:LOB), Wells Fargo (NYSE:WFC), Huntington Bancshares (NASDAQ:HBAN), and U.S. Bancorp (NYSE:USB).

Two people shaking hands.

Image source: Getty Images.

More widespread use of SBA loans

SBA loans are usually extended to businesses for strict uses such as the financing of equipment and property needs. But this new funding will be a lot more lenient and allow businesses to cover expenses such as payroll and sick leave. It will also likely waive all loan fees for borrowers and lenders. Becoming a preferred SBA lender is not an overnight process. It is often lengthy and takes a good amount of training to get comfortable with the loan origination process. More documentation and more hurdles come with substantial government backing, so banks that are already approved by the SBA to do this type of lending and are experts will likely get the call.

That's why a company like Live Oak Bancshares seems poised to excel. In 2019, the bank originated almost $1.3 billion in SBA loan volume, about $600 million more than the next best SBA bank (according to data compiled by SBALenders). Live Oak has been in the SBA business for about a decade and makes these loans all over the country, in lots of different sectors. In 2019 alone, the bank added nine lenders to its general SBA team. Knowing how to do SBA lending and having an experienced and large team in place gives Live Oak a huge head start.

Potential for growth

It's hard to say if SBA loans issued to businesses affected by the coronavirus (COVID-19) pandemic will result in any significant net interest income (the difference between what banks pay for capital and what they earn on loans). During a time like this, banks may drop interest rates to very low levels. Congress could even mandate the SBA loans be interest-free or even potentially not be repaid at all. But given that loans will need to be made and with quick turnaround times, this should open the door for SBA lenders that have historically been good at making quicker loans. Given that Wells Fargo, Huntington, and U.S. Bancorp originate many more loans than their peers, these are the banks that will probably excel in making these loans.

The critical need for capital could also push these SBA lenders to originate SBA loan products they have not previously done before. The original coronavirus relief package approved by lawmakers a few weeks ago included $7 billion in SBA disaster loan authority. Preferred SBA lenders don't typically make SBA disaster loans, but they may get the call given that the SBA has never had to disburse so many funds in such a short amount of time.

More SBA could be good in the long term

Remember, relationships are still key for most banks when it comes to generating new business. New customers in desperate need for a loan right now may turn to these preferred SBA lenders in this critical time, and then become long-term customers down the line. After all, what better way to bond than by helping a small business get through a recession or crisis?

As always, this should be the beginning of your research, not the end. While SBA lending could be a big boost for these banks, there's more to the investment case. For example, of these four, only Huntington and U.S. Bancorp currently sport an efficiency ratio under 60% (operating costs divided by net revenue -- lower is better). 

But if the extra funding comes to fruition, I would expect top SBA lenders to grow loan volume during a time when projections for the year are likely being dramatically slimmed down.


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