Financial

Loans, Finance and Staying Afloat in a time of Covid


We asked Chris Rocchio, DVM who is on the NYSVMS Finance Committee, and Treasurer for Capital District VMS, to put together a team to help answer questions about financial issues. The team so far includes:

  • Dr. Chris Rocchio, Monarch Business Consulting
  • David Waterman, Monarch Business Consulting
  • Matt Hosford from our lawyers, Jackson Lewis
  • Sean Coyle, Lendeavor
  • Deb Best, Deb Best Practices

The webinar covered:

  • Decreasing your cash flow through the pandemic
  • Disaster Relief Loans and the Stimulus Package - what does it mean to the practice owner?
  • What if you need to decrease your workforce?
  • COVID-19 employment items to note 
  • COVID-19 leaves and when to use them, Unemployment Insurance (UI), the UI Shared Work Program, etc.
  • What is the short and long term effect on practice values and sales?

Personal Finances

Employer Provided Tax-Free Qualified Disaster Payments to Employees

https://www.irs.gov/

 

  1. Now that Covid-19 has been designated a disaster under the Stafford Act, Internal Revenue Code Section 139 ("IRC 139") can allow certain payments made by employers to employees to be tax-free to the employee while remaining fully deductible for the employer.
  2. Generally state treatment will mirror the federal treatment, but confirmation will be needed on a state-by-state basis.
  3. Wage replacement such as paid leave or sick pay is not covered by IRC 139. These payments are still subject to income and payroll tax withholding.
  4. Payments must be for expenses that are reasonable and necessary.
  5. When applying the provisions of IRC 139 to Covid-19 related payments, employers may look to consider the following examples of tax-free qualified disaster payments:
  6. Medical expenses.
  7. Health-related expenses that are not medical expenses, such as over-the-counter medications, hand sanitizers.
  8. Child care and tutoring expenses due to school closings.
  9. Work-from-home expenses such as required technology equipment & increased utility costs.
  10. Critical care and funeral expenses.
  11. While guidance to date does not require employers to establish a written IRC 139 program, it may be favorable for employers to have a written program in place that outlines details related to the payment given by the employer to the employee.
  12. We expect more guidance to be given as to the applicability of IRC 139 to Covid-19.

 

Mortgage Relief

https://www.hud.gov/

 

  1. HUD authorizes Federal Housing Administration to implement an immediate foreclosure & eviction moratorium for single family homeowners with FHA-insured mortgage for the next 60 days.
  2. HUD recommends you contact your Mortgage Service Provider to work through your personal situation.

 

Federal Student Loan Aid

https://studentaid.gov/

 

  1. President Trump has issued a freeze on interest for Federal student loans for at least 60 days starting March 13th. This includes Direct Loans, Federal Perkins Loans and Federal Family Education Loan Programs held by the US Department of Education.
  2. Contact your loan servicer online or by phone to determine if your loans are eligible. Your servicer is the entity to which you make your monthly payment. If you do not know who your servicer is or how to contact them, visit StudentAid.gov/login
  3. Loan Forbearance is available:
    1. Going into forbearance (payment suspension) during this time will allow you to pause your student federal loan payments but not accrue any interest or penalties
    2. To request forbearance, borrowers must contact their loan servicer online or by phone. If you do not know who your loan servicer is, go tohttps://studentaid.gov/manage-loans/repayment/servicers#your-servicer
    3. In the event borrowers cannot get through to their lender, the department has authorized an automatic suspension of payments for any borrower more than 31 days delinquent.
  4. If borrowers choose to continue to make payments, 100% of their payment will be applied to the principal amount of their student loan.
  5. The 60-day student loan forgiveness does not apply to private student loan lenders. However, some private lenders will temporarily modify and reduce monthly payments based on financial hardship. In addition, a temporary reduction may lead to higher payments when the temporary modification ends. To find out your options regarding a private lender, please contact them directly.
  6. For more information, go tohttps://studentaid.gov/announcements-events/coronavirus#borrower-questions

Links to business resources

The following links are provided to help stay up-to-date on responding to the Covid-19 virus from a business perspective
See the section above for health-related issues

NOT BORROWING MAY BE YOUR BEST OPTION

      Reach out to your bank for payment relief
      Negotiate with vendors to delay payments for supplies and services
      Watch our webinar on 3/31 to see how you can still break-even with 40% downturn in business

    NEW COVID-19 RELATED FEDERAL LOANS
    One of the best sites to see full details is the US Chamber of Commerce
    We aren't going to try to duplicate the quality of information on the US Chamber site, but here is a brief summary of the new loans available.

    Links below go to the US Chamber of Commerce
    SBA Federal Disaster Assistance
    • Signed into law March 6th
    • Last resort - intended for businesses that can get no other credit
    • Interest rat 3.75%
    • 30 year repayment
    SBA Paycheck Protection Program
    • CARES act - signed into law March 27th
    • Borrow enough to cover payroll for 2.5 months
    • Loans will be forgiven if the employer continues to employ its workers
    New York City Disaster loans
    • Be located within the five boroughs of New York City
    • Demonstrate that the COVID-19 outbreak caused at least a 25% decrease in revenue
    • Employ 99 employees or fewer in total across all locations
    • Demonstrate ability to repay the loan
    • Have no outstanding tax liens or legal judgements
    NYC Employee Retention Grant Program
    • Be located within the five boroughs of New York City
    • Demonstrate that the COVID-19 outbreak caused at least a 25% decrease in revenue
    • Employ 1-4 employees in total across all locations
    • Have been in operation for at least 6 months
    • Have no outstanding tax liens or legal judgements

    BE INCREDIBLY CAREFUL about the range of short-term lending products that you will find on the internet. Many of them give misleading information about how much the loan will really cost you, and may have clauses in the fine-print that will cost you dearly.

    Ideally you should start with your bank or existing lender and have their loan advisor help you find the correct solution.

    Work with your creditors

    As your revenue begins to fall due to Covid-19, you may be facing a cash-flow crunch so that you can no longer pay your bills.

    I am going to share some personal advice with you that came from several years working in the commercial lending world, where lenders were frequently working with their financially distressed clients to turn the business around.

    The #1 step you should take is to talk to all your creditors and negotiate payment terms. They are just as invested in your business surviving as you are. They don't want to be saddled with a large amount of distressed debt that they have to sell for pennies on the dollar.

    And for you - It is usually going to be cheaper to delay payments than to borrow money, and easier too.

    Remember that someone you owe money to has a strong vested interest in your business surviving. They will lose money if your business fails.

    1. Your commercial loans and mortgage
    This may be the mortgage you used to buy your property, or the bank loan that you used to buy your business. Start talking to them today. They are going to be run off their feet, and may not be able to get back to you for a week, but get on their list. The banks don't want to see a huge number of the businesses they support fail, that would be a disaster for them. The chances are that they are already putting together rescue packages. Find out what those are as soon as you can.

    This is also a business opportunity for them. They may have bid competitively for the opportunity to lend you money, and be making very little profit from the loan. If they can negotiate a slightly higher interest rate or additional fees in return for delayed payments, that is a win for them, and could be a win for you two if you can keep afloat.


    2. Your suppliers
    Many of your suppliers will be large companies that can borrow at low interest rates. They can actually make money by negotiating late payment fees with you. If you pay a 1.5% penalty for paying 30 days late that is equivalent to 18% a year. Your late payment is a source of profit to them.