Small Businesses Agonize Over PPP Loan Forgiveness

The Paycheck Protection Program (PPP loan) pumped $525 billion in forgivable loans to small businesses from early April through early August. The program has been praised for saving jobs and buoying struggling businesses but criticized for its clumsy rollout, fraud, and for favoring companies with established banking relationships over underbanked ventures. 

In a recent report, the Government Accountability Office urged the Small Business Administration to identify and respond to multiple PPP risks among other recommendations for other agencies to improve the government’s response to the pandemic.

One reason the PPP was so attractive to borrowers was the potential to turn loans into grants. For that to happen, each borrower needed to complete a forgiveness application and submit it to their lender, who would work with them to make it stronger. In a study reported by Politico on September 19th, the agency had received “96,000 forgiveness applications– representing fewer than 2 percent of the total loans– but has not approved or denied any of them.” 

Because of the PPP’s changing rules, there’s confusion around the forgiveness process, says Brian Pifer, vice president of entrepreneurship at advocacy group Small Business Majority, which has about 65,000 members in its network. Multiple trade groups are supporting two bipartisan bills that would forgive PPP loans under $150,000 once the borrower completes a one-page form, according to the American Bankers Association. There’s also broad support to relaunch PPP, though the Brookings Institution is suggesting tax credits would be more effective, Bloomberg News reported

What should a business owner keep in mind about the forgiveness process?  We spoke to Chris Levy, a senior vice president at Pursuit, a community development financial institution which has funded over 7,000 PPP loans totaling nearly $500 million to businesses in New York, New Jersey, and Pennsylvania. Its median loan size was about $20,000. Levy says his institution got money to “the smallest of the small businesses out there–the ones that were really struggling.” 

Levy listed a few pieces of advice for small business owners to keep in mind: 

  1. You Have Some Time. Borrowers understandably are eager to complete the forgiveness application and put the PPP loan behind them, says Levy. You can apply for loan forgiveness as soon as your lender starts accepting forgiveness applications. But you should wait because Congress will likely pass legislation that will make the forgiveness process easier, he says, including automatic forgiveness for PPP loans of $150,000 or less.

While some lenders are accepting applications, Pursuit and many others aren’t yet. “The main reason we’re waiting is because we don’t feel like it’s appropriate not only for us to waste our time but for our borrowers to waste their time going through a super detailed forgiveness application that is only going to get easier,” says Levy. 

  1. Review the rules and basics. You can get loan forgiveness on what you spend on payroll, rent, and other eligible expenses during the so-called covered period—the 24-week period beginning the day you receive the funds from your PPP loan. The rules have changed significantly as PPP has evolved: The minimum amount that must be spent on payroll is 60% (originally it was 75%). You can spend up to 40% on non-payroll costs such as rent, utilities and mortgage interest. The loan maturity is now five years; it used to be two years.

 

Once the 24-week period ends, you have 10 months to submit your forgiveness application to your lender, according to this FAQ from the SBA. You don’t need to make any payments until the SBA makes a decision. If only a portion of the loan is forgiven, or if the forgiveness application is denied, the balance due on the loan must be repaid by the borrower on or before the maturity date of the loan.

 

  1. Chew on this scenario. A business owner who received a PPP loan in April is allowed to wait until December to apply through their lender for forgiveness. The SBA might not make a determination until February. The borrower would not make any payments during that 10-month period. “The deferment period is essentially undefined and will not be defined until the SBA makes a determination,” says Levy. “It allows borrowers more time.”
  2. Stay Calm.  “The one thing we’ve found throughout this whole process—the more patience you have, the better the rules get for you,” says Levy. Keep payroll records as you normally do and communicate regularly with your lender, he says. He urges business owners not to drive themselves crazy. The 3508 EZ form simplifies the rules and should work for almost everyone, Levy says. “It’s really made it that much easier for everyone to obtain full forgiveness. The forgiveness documentation is the same documentation that they had to use when they initially applied, he says. “If they got the loan in the first place, they’ll be able to get forgiveness.

While the coronavirus has put a detrimental strain on many businesses, small businesses have been struggling a great deal. For any small business owners out there, stay calm, educate yourself on the situation and remain positive. The PPP loan has helped so many small businesses stay afloat during this economic crisis. If you have any questions on your small business or its financial situation, we’d be happy to chat. Please reach out to us at info@shermanwealth.com and refer to our other blogs for further resources.

Financial Advice For Parents

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Raising a child in today’s world can cost hundreds of thousands of dollars. As a parent of four children ranging from ages 5 to 16, I can attest to just how expensive kids can be. Besides just the essentials like food and clothes, there are club teams, tutors, dance lessons and so much more. With each additional family member comes new financial considerations and expenses. The importance of planning for these costs before they arise is a key reason why many financial advisors are targeting young families and helping them successfully navigate how to cover their children’s expenses without compromising their own financial security. Here are a few top takeaways from some of these advisors:

SAVING FOR COLLEGE

With a high school junior in our house, it won’t be long before we are paying that dreaded college tuition bill. And, due to the ballooning costs of higher education, this bill is not likely to be a small one! If possible, new parents should try to start saving as soon as they can for their child’s college tuition.The earlier you start saving, the better prepared you’ll be. If you save $500 a month at birth, you should have around $190,000 saved by the time that child reaches 18 (assuming an annual return of 6%). However, if you don’t start until your son or daughter is 10, you’ll only have around $60,000 by the time they graduate high school. Setting up a state-sponsored 529 college savings plan, allows parents to invest money and then withdraw it tax-free, so long as the funds are used for certain education expenses. However, as you prepare for your children’s future, make sure that you remain focused on your retirement saving as well. There are lots of ways to pay for college, but you can only use the resources you’ve accumulated for your own retirement.   

CHILDCARE AND HEALTH CARE

When our first child was born, my husband and I were both working, and trying to find affordable childcare was not easy. Childcare is one of the biggest expenses new parents will face, especially if both parents work. In some cases, one parent will decide to leave their job and take care of the child themselves, especially if the cost of childcare is more than one parent is making. This is exactly what happened when our second child was born, since it was no longer cost effective to pay for childcare for two children with my salary.   

Meanwhile, childbirth and adoption count as qualifying events that allow parents to make changes to their employee benefits outside of the open enrollment period at work. For example, new parents can expect to see their medical expenses rise and those who have access to a flexible savings account and health savings account at work should use them since the money put into an FSA or HSA avoids federal taxation. In some cases, employers offer a Dependent Care FSA, which can be used for costs picked up from a nanny, babysitter or childcare center.

When it comes to health insurance, if both parents work, you should examine which plan will cost less to add the child to. Most doctor visits in the first couple of years are considered wellness visits, which are typically free or very low-cost in most health-care plans today. But, you should look into which plan is most cost-effective in the event of a trip to the emergency room or having to see a specialist – even with good insurance, the price tag of a broken bone is a lot more than you might think!

LIFE INSURANCE

Even though it’s not something most people like to think about, preparing for death is of utmost importance when becoming a parent. Your financial advisor should be able to run various calculations to figure out the amount of protection you would need. Many families make the mistake of only getting life insurance for the main earner, experts say, but both parents should be covered. Many people think that since stay-at-home parent isn’t actually earning anything, they don’t need insurance. However, when it comes to life insurance, you need to evaluate what it would cost to have someone else take care of your children if something were to happen to that parent.  

It is also extremely important to put together estate planning documents, including a will and health-care directives, as well as discussing appointing a guardian in the event of an unexpected life event. When we found out we were expecting our first child, it forced us to have some difficult conversations about who we would want to take of our child and how our assets would be distributed if something happened to us. It’s also important to revisit those questions each time you add another child to your family or if there is another major change to your assets. The guardians you might have written in your will when you were 25 might not be the same guardians you would choose when you are 45. None of these decisions are easy ones, but they are vital to preparing for your life as a parent.

EMERGENCY SAVINGS

With all the additional expenses new parents can face, from diapers to a larger home and mortgage, it’s more important than ever to have a safety net for those unexpected costs. Having children is a good reason to have a bigger emergency fund, simply because there are now more people who are dependent on you financially. Aside from the random home and car repairs that always seem to pop up when you least expect them, now add braces, sports equipment and teenage social lives to the mix. Having some money from each paycheck deposited directly into an account that you don’t touch is an easy way to make sure you are creating an ample emergency fund should you need it.  

There are so many wonderful aspects of being a parent, but it is definitely a costly undertaking. Seeking some financial guidance before you become a parent is always a good idea, but it’s never too late to start planning for your future with a family. If you have any questions about saving for college, choosing the right health plan, putting together your estate documents or anything else related to your financial goals or plans, please contact us.  We offer a free 30-minute introductory consultation and would love to hear from you!  Check out our other blogs for more financial advice and tips.

 

IRS Finalizes ABLE Account Regulations: Here’s What to Know

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The IRS recently published final regulations for Achieving a Better Life Experience, or ABLE, accounts for disabled Americans. ABLE accounts aim to help people with disabilities and their families save and pay for disability-related expenses. Even though the contributions aren’t deductible, distributions such as earnings are tax-free to the designated beneficiary if they’re used to pay for qualified disability expenses. These expenses can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services, along with other disability-related expenses.

The regulations come in response to and finalize two previously issued proposed regulations from the IRS. The first proposed regulation was published in 2015 after enactment of the ABLE Act under the Obama administration. The second proposed regulation was published in 2019 in response to the Tax Cuts and Jobs Act, which made some major changes to ABLE. 

Eligible individuals can now put more money into their ABLE account and roll money from their qualified tuition programs (529 plans) into their ABLE accounts. In addition, some contributions made to ABLE accounts by low- and moderate-income workers can now qualify for the Saver’s Credit.

The new regulations also offer guidance on the gift and generation-skipping transfer tax consequences of contributions to an ABLE account, as well as on the federal income, gift, and estate tax consequences of distributions from, and changes in the designated beneficiary of, an ABLE account.

In addition, before Jan. 1, 2026, funds can be rolled over from a designated beneficiary’s section 529 plan to an ABLE account for the same beneficiary or a family member. The regulations provide that rollovers from 529 plans, along with any contributions made to the designated beneficiary’s ABLE account (other than certain permitted contributions of the designated beneficiary’s compensation) can’t exceed the annual ABLE contribution limit.

Lastly, the final regulations offer guidance on the record-keeping and reporting requirements of a qualified ABLE program. A qualified ABLE program must maintain records that enable the program to account to the Secretary with respect to all contributions, distributions, returns of excess contributions or additional accounts, income earned, and account balances for any designated beneficiary’s ABLE account. In addition, a qualified ABLE program must report to the Secretary the establishment of each ABLE account, including the name, address, and TIN of the designated beneficiary, information regarding the disability certification or other basis for eligibility of the designated beneficiary, and other relevant information regarding each account. 

For more information about ABLE accounts or if you have any questions regarding these regulatory changes, please contact us at info@shermanwealth.com or check out our other relevant blogs

What to Do If You Don’t Have a 401(k)

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As the coronavirus sweeps the world and people take a step back to look at their financial picture, they are realizing that they do not have a company 401(K). 

Even though some of these people work at a company where they offer a 401(k), they may not be eligible due to not meeting criteria, such as length of employment, or they are not a full-time employee.

So, as people are stressing more about the importance of having a hefty savings account, it’s a great time to discuss options for individuals who are not eligible for their company 401(k) or do not have one through their workplace.  Below we will share several options for people in this situation according to an article by MorningStar.

1) Invest in an IRA.

A good first step for someone without a 401(k) is setting up an IRA. An IRA is a great other step to save for retirement and seek tax benefits. You are eligible to contribute $6,000 a year to your IRA.

2) Look Into Self-employment accounts are an option.

For self-employed individuals, there are several options to consider. Some of them are similar to 401(k)s but are just set up a bit differently. Speak with a financial professional to see what options you can set up for yourself. 

3) Consider an HSA 

If you have a high-deductible health care plan you can consider setting up an HSA in order to save some of those dollars and grow your money tax deferred. 

4) Open a Taxable brokerage account.

While its always nice to grow your money tax deferred, investing in a regular taxable account is always a great option. You can speak with a tax professional to see how to do so in a tax efficient manner. 

5) Be part of the solution.

Lastly, if you work for a small employer without a 401(k), maybe ask them to see if it’s something they are interested in starting. Never hurts to ask! 

As always, if you have any questions about your current 401(k) or need help investing money in order to supplement a lack of one, please reach out to us and we would be happy to discuss your future financial goals.  

Money Mistakes You Might Make in a Recession

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It’s very common to make mistakes when it comes to your finances and managing your money. We read a Wall Street Journal article discussing the biggest money mistakes people tend to make during an economic downturn and we want to bring light to a few of them and talk about ways to avoid them.

By reading and addressing financial mistakes people make, hopefully you can avoid them in the future. Below we will discuss some common financial mistakes people often times make. 

  • Refusing to Tap the Emergency Fund
  • Avoiding Credit Score
  • Avoiding Savings For Retirement
  • Ignoring Money Conversations

As mentioned above, an economic recession is the perfect opportunity to take a step back and discuss and organize your finances. Saving for the future, talking to someone about your investments, and organizing your portfolio are all smart moves when setting yourself up for financial success and the ability to navigate an economic recession. If you have any questions or want to talk about your personal finances, please reach out to us at info@shermanwealth.com. To read some of our other blogs, check it out here

Top 5 Pieces of Financial Advice

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As we are all adjusting to the new norm that the coronavirus pandemic has created in our world, we are also learning pieces of advice that we could share from this experience. When going through an economic crisis, it’s important to keep some tips at top-of-mind to help you navigate the bumpy waters. In a CNBC Select Article, we found 5 great pieces of financial advice that we want to share with you to put in your financial repertoire.

First and foremost, try not to accumulate credit card debt. Racking up credit card debt can have very negative long term consequences, so it’s important that you pay the full balance on time. When you do not pay the full balance on time, your card will quickly accumulate interest, which often can get so high that it’s hard to pay off. 

According to recent Federal Reserve data released in September, the average interest rate for all credit card accounts is 14.87%. Among accounts assessed interest, or accounts with outstanding finance charges, the average interest rate rises to 16.88%. But for consumers with credit scores below 670, interest rates can near 30%, CNBC Select reports.

Next, make sure you don’t buy things you can’t afford. Although this one seems obvious, it’s much more common than you think. Avoid overspending and spending on things you can live without. Start putting that extra money into savings accounts where you can be accruing interest and earning money. 

Third, invest the year’s expenses or anything saved after you have the year’s expenses saved? Before the pandemic, many people were saying how you should have several months of rent and expenses in a savings account for a rainy day, but as we have seen the economic hardships the coronavirus has inflicted upon our society, we are suggesting to save about a year’s worth of expenses before investing it elsewhere. 

Fourth, start to think like a savvy businessman or woman. Learn to negotiate. Especially in the world we are living in today, make sure you are constantly looking for deals and inquiring about credit card versus cash options. Oftentimes, places will charge you less if you pay in cash. So, before swiping that card, make sure you think about all your options. 

Lastly, buy in bulk. With Amazon becoming increasingly popular and making it possible to get what you need in a matter of hours, take advantage of deals and places you can buy in bulk. If you can save a few dollars here and there, take advantage of it. It’s important to be a smart shopper, especially when buying something pricey, such as groceries for a large family. 

By implementing some of these basic money management tips into your daily routine, you will find yourself becoming a more savvy shopper and saving more money. It is especially important during an economic recession to take these concepts into consideration and make the most of your finances. If you have any questions on other ways you can maximize your financial portfolio and find places in your budget where you can save money, please reach out to us at info@shermanwealth.com or visit our site at www.shermanwealth.com. Check out our other blog posts for more financial advice and tips! 

 

The Best Credit Cards For Grocery Shopping In 2020

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As the corona-virus pandemic has put a halt on restaurant dining, Americans have found themselves cooking at home more and in turn, spending more money on grocery shopping. When increasing your spend in a certain category, it’s important to think about how you can maximize these purchases and your budget by building rewards. You may want to consider a rewards credit card that can help you earn over $100 a year on your groceries. 

We read an interesting article from CNBC select that discussed the best credit cards to apply for if your grocery spending has increased or is a large chunk of your monthly budget. The average American spends about $5,174 a year, or roughly $431 a month, on groceries, according to a sample budget based on the latest spending data available from the location intelligence firm Esri. That’s more than Americans spend on dining out, which comes to about $3,675 annually. 

The best grocery rewards cards offer up to 6% cash back at supermarkets. While they usually exclude wholesale clubs such as Costco and BJ’s, and big box stores like Target and Walmart, you can still take advantage of these rates at Whole Foods, Krogers and other big name grocers.

CNBC Select analyzed 26 popular rewards cards using an average American’s annual budget and digging into each card’s perks and drawbacks to find the best grocery store rewards cards based on your spending habits. 

Here are CNBC Select’s top picks for credit cards offering supermarket rewards

If you find that your grocery bill takes up a large portion of your monthly budget, take a look at these credit cards, to see if you could capitalize on your spending. Additionally, no matter where you spend the majority of your money, whether it’s travel or dining, make sure you look into credit cards that are the best fit for you. If you have any questions on your portfolio or credit cards to maximize your spending, please reach out to us at info@shermanwealth.com

Here’s How The Pandemic Has Upended The Financial Lives Of Average Americans: CNBC + Acorns Survey

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The coronavirus pandemic has upended many Americans’ financial lives. While millions are unemployed and sufferings, there is actually more positive financial data than you would think. 

According to CNBC and an Acorns Survey, many are saving more and spending less. In fact, 46% of the respondents said they are “more of a saver now” compared to before the pandemic. Additionally, 60% consider themselves “savers,” up from 54% last year. The poll, conducted by SurveyMonkey Aug. 13-20, surveyed 5,401 U.S. adults and has a margin of error of +/-2%.

 

About half, or 49%, said their monthly spending has decreased, compared to 33% last year. Some of those savings can be attributed to the fact that people stayed home and didn’t do things like dining out, said personal finance expert Jean Chatzky, co-founder of HerMoney.

While many have been struggling these last few months, others have picked up on some financial skills, learning how to save dollars here and there, cutting out old subscriptions, and being smarter spenders. By prioritizing wants versus needs and taking a look at how much money is going out each month, people have picked up better spending habits that will help them navigate these bumpy waters ahead. 

With extra cash and savings in the bank, it’s important to talk with an advisor about options and investing that makes the most sense for you, whether it be saving for retirement, college tuition, or something else. If you have any questions for us, please reach out at info@shermanwealth.com and we would be happy to set up a time to discuss a financial plan for your future.

 

Here’s The Importance of Financial Literacy

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Sherman Wealth has long been advocates of promoting financial literacy and empowering our world to become more educated on how to manage all aspects of their financial lives. We want to highlight an interesting article we saw on www.evidenceinvestor.com, discussing several reasons why “high flying professionals fail at investing”. This piece highlights the lack of financial literacy in our country, regardless of occupation or socio-economic upbringing. According to the article, “the best investors often times aren’t those with the highest IQs or who’ve read the most books, it isn’t knowledge, but SELF-knowledge, that really sets them apart.” 

Often, high-earning professionals think they are saving enough but countless financial complexities exist within a professional services career track. Biases or mental errors are some of the biggest things standing in the way of financial success, mainly because they’re not easy to recognize in ourselves. Additionally, people are naturally resistant to change and most people are hesitant to pay small costs even for big gains. 

Failure to rebalance is also something that many people struggle with and contributes to financial literacy. People are reluctant to take action to rebalance a portfolio. It’s too much fun to let winners run. It’s also psychologically difficult to sell winners to buy losers. But failure to rebalance quickly causes the client to be dangerously exposed to a downward turn in the markets

People also tend to overestimate the significance of recent events and irrationally discount longer-term trends. Those of us over a certain age remember Black Monday on October 19th, 1987. The stock market lost a quarter of its value in a single day. That spooked a lot of people – and many got out of the market right after. Looking back at it now, Black Monday barely registers as a blip on the graph. This is an example of recency bias. Recent losses play havoc on our emotions and cause us to lose perspective. The long-term trend of the stock market makes any single day’s volatility look insignificant in comparison, so when we look back at a single day like Black Monday on a chart, we wonder how we could have panicked. Furthermore, given the current climate with COVID-19, it’s important to consider this idea, as people may have panicked back in March, selling assets in their portfolio, instead of holding onto them as the economy recovers. While it often seems natural to panic during an economic downturn, it’s important to remember that these dips recover naturally over time. 

These are just a few examples of how society and perception can lead us to make poor financial decisions. Given the current climate we are living in today, it is crucial to make sure you fully understand the decisions you make within your portfolio and that they are long-term, strategic moves. With a lack of financial literacy amongst all career fields and economic classes in our society, we realize the importance of being financially educated and would love to help you to make smarter decisions. If you have any questions or would like to set up a time to talk about your finances, please feel free to reach out at info@shermanwealth.com. Check out more of our blogs that discuss the importance of financial literacy.

How Much Longer Until The US Economy Is Back To Normal? This New Index Shows We Have A Long Way To Go

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As we approach the six month mark from when COVID-19 turned our world upside down, we are beginning to adjust our lives to this new “normal”. As we continue to adapt to this different way of life, some things are seeming back to the way they were before, but much remains new and strange. We are going about our days wearing masks and social distancing, watching our favorite sports teams play in “bubbles”, empty stadiums and arenas, and spending our work day in sweats and from the comfort of our homes. 

As we begin to normalize some of these news ways of living, it raises the question of how far we really are from our old way of life? How much progress are we making towards this new “normal” that will be our future? As of right now, we’re seeing what’s called a “K” shape recovery, which is that the stock market is recovered, but the economy and mainstreet remains suffering. People are wondering if there will be a double dip recession potentially in the fall and winter months if the virus comes back. 

We’ve been thinking about how to tackle these difficult and unknown questions and found an interesting article by CNN Business and Moody’s Analytics, which raises some of these questions as they relate to the economy.

According to their analytics team, the U.S. economy remains far from normal. Based on the back-to-normal Index that they constructed, which takes into account 37 indicators, including traditional government stats and metrics from a host of private firms to capture economic trends in real time, the U.S. economy was operating at only 78% of normal as of August 19th. They are using the economic data from prior to when the pandemic struck in early March as a baseline as “normal”. They are saying that the “economic activity nationwide is down by almost one-fourth from its pre-pandemic level-far from normal”. 

Even though that data is not so promising, it’s important to note that it is substantially better than the darkest days of the pandemic in mid-April, when we were unsure of how dangerous this virus could be. As business re-opened between mid-April and mid-June, according to their back-to-normal index, the economy opened too quickly, with many surges in coronavirus cases throughout the summer leading to states halting their reopening plans. 

While our country is recovering slowly but surely from this deadly pandemic that has swept our world, we still have ways to go to reach our pre-pandemic “normal”. While the economy still needs time to recover, it’s the best time to think about your finances and how to manage your money to make sure you come out of these unprecedented times strong. Find out how much risk you are taking on, what investments you have and where you want to be given the circumstances and with the all time highs in the markets. If you have any questions about your portfolio or ways you can manage your money during these rocky times, please reach out to us and we’d be happy to help.