The novel coronavirus outbreak that began in the winter of 2020 has wreaked havoc on the health and finances of thousands of Americans. Businesses, especially small businesses, have seen their revenues fall off a cliff in just a few weeks. While independent insurance agencies may not have been impacted as quickly as other types of businesses, declining commissions driven by large return premium audits will eventually take their toll.
In response and in the hope of stabilizing the economy, Congress and the president enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in late March. The $2 trillion measure provides assistance to individuals and businesses, with $377 billion earmarked for small businesses. While much of the focus has been on the aid it will provide to industries such as restaurants and tourism, insurance agencies may be able to take advantage as well.
Eligible small businesses can tap into these programs:
Paycheck Protection Program. This is a $350 billion loan program to help eligible businesses avoid laying off workers. The program is open to businesses that were in operation on February 15, 2020 and that have fewer than 500 employees (full-time, part-time and other.) Sole proprietors, freelancers, gig workers and contract employees are also eligible.
Businesses can borrow up to 2.5 times their average eligible monthly payroll costs, to a maximum of $10 million, at interest rates no higher than 4%. Eligible payroll costs exclude wages in excess of $100,000, payroll and income taxes, and other taxes. Businesses that can show they used the money for qualifying payroll costs, mortgage interest, rent or utilities during the eight weeks after they borrowed it may be eligible to have the loans forgiven.
Loan applications from small businesses are pouring in, according to Sam Patterson, CEO of Springtree Group, a multi-service firm that provides insurance agency financing. Dan Bywater of Ready Capital stated “Agencies that still ran using older technologies, face to face sales, and payment collection have been the agencies that have called us the most for the PPP program.” In other word, the traditional insurance agency has taken advantage of these loans the most.
Agencies may begin to apply as they feel the pinch from falling premiums and the resultant decline in commissions. While there have been some problems getting the program off the ground, Patterson expects them to be resolved and funding to start flowing soon. Banks will need an agency’s payroll and commission records, so agencies should start preparing those now.
The demand for PPP loans has been so high that Congress may add more funding. The White House has requested an additional $251 billion for the program.
Emergency Economic Injury Grants: These are available to businesses and nonprofits that apply for economic injury disaster loans directly from the U.S. Small Business Administration. Businesses that were in operation as of January 31, 2020 can ask for the grants when they apply for the loans. While loan processing can take up to four weeks, the SBA will send the grants to businesses within three days of application. The grants are for $10,000 to meet immediate needs, and businesses can keep them even if their loan applications are denied.
SBA Loan Deferrals. Agencies that have outstanding SBA loans will have their payments deferred for six months. Most lenders have already implemented the deferrals, says Patterson. “Customers need not do anything to apply.”
Tax Credit. A fully refundable tax credit is available to cover up to 50% of the first $10,000 in employee compensation costs, including health benefits, for each employee. It applies to wages paid between March 13 and December 31, 2020.
Congress wants businesses, including insurance agencies, to take advantage of these programs. Getting cash into the hands of businesses and consumers will help ease the economy’s slump. Agency principals who expect their revenues to start declining should consider using these programs to help their businesses survive the pandemic.
Agencies can find a number those who participate in the CARES program under Insurance Agency Loans.