Starting this week, independent financial advisory firms with less than 500 employees who are having difficulty meeting payroll costs and rent can apply for a small-business loan through a program created as part of the $2.2 trillion economic emergency legislation that Congress recently passed.
The legislation, known as the CARES Act (short for Coronavirus Aid, Relief and Economic Security), includes $349 billion for a Payroll Protection Program designed to help small businesses keep workers on their payroll at a time when many employees are being laid off because businesses are running out of money to keep operating. Advisor clients who own small businesses may also be able to participate in the program, which could be expanded to include more funding, according to Treasury Secretary Steven Mnuchin.
The loans will be forgiven if the funds are used for payroll costs, health care benefit costs, including insurance premiums, mortgage interest, rent and utilities so long as employees are not laid off and the pay of employees earning less than $100,000 is not cut by more than 25% within eight weeks of receiving the loan.
Layoffs are calculated comparing the number of employees within those eight weeks to the number from Feb. 15 to June 30, 2019, or Jan. 1 to Feb. 29, 2020. A firm can still qualify for full forgiveness if laid-off employees are reinstated by June 30.
Loan amounts are based on a payroll formula essentially equal to 2.5 times the average total monthly payroll cost incurred in the year before the loan was made.