Should fee-based advisers take stimulus loans?

The $2.2 trillion coronavirus stimulus package appears big and expansive enough to include something for just about everyone.

For financial advisers, especially those eligible for emergency funding through the Small Business Association, this might be a time to test your mettle as an asset-based fiduciary adviser.

According to Live Oak Bank, the nation’s leading SBA lender that has carved out a niche writing loans to registered investment advisers, the stimulus package includes two unique opportunities for advisers.

Specific details are still being worked out on SBA loans through the massive Coronavirus Aid, Relief and Economic Security Act, but it looks like existing SBA loans will be eligible to have the principal and interest paid by the government for up to six months.

The second piece of the CARES Act about small-business support, involves access to SBA loans equal to 2.5 times a business’ monthly payroll expense, which is part of the stimulus package’s Payment Protection Plan.

Those loans, which cap any individual’s monthly income at $8,333, or $100,000 per year, also include government support on the monthly loan payments for up to one year, after which the loans are potentially forgivable if certain guidelines are followed.

“RIAs that have been affected by COVID-19 do qualify for the SBA lending programs,” said Mike McGinley, executive vice president at Live Oak Bank.

“If you are asking me whether RIA’s should be taking advantage of the Payment Protection Program, I would say that if they have been adversely affected by COVID-19, then they are eligible for the funds,” he added. “As an example, AUM has decreased because of the drop in the equities markets.”

Like McGinley, who is scrambling to decipher the lending rules as the SBA gears up to start taking applications later this week, David DeVoe, managing director of DeVoe & Co., is analyzing the fine print.

“This creates opportunities RIAs should be considering, and it’s appropriate for advisers to determine if and when the programs might help them during this time and to consider which programs might be best for their clients,” said DeVoe, who is hosting a webinar to help advisers better understand the lending programs.

[Navigating 2020: Optimizing your practice during the COVID-19 outbreak webinar] 

It would be foolhardy to assume Congress could produce a piece of perfect legislation, even under ideal circumstances, and this stimulus package is no exception.

The SBA program, which will include loans of up to $10 million, can be a great tool for scrappy advisers to help business-owner clients navigate these uncertain times. But is this really a tool that should be accessed by RIAs that are still collecting asset-based fees, just because the stock market has pushed those fees lower?

DeVoe makes a solid case for how even RIAs “without acute capital needs” can use the emergency lending programs “to help firms reduce destruction or come out of this as strong as possible.”

Whatever the other side of this virus looks like, coming out stronger is an unimaginable luxury to the restaurants, hair salons and thousands of other small businesses that have had to completely shut down.

It might be unfair to make a comparison now to the people hoarding toilet paper and hand sanitizer, but if your fees are down because the market is down, maybe just be grateful for the fees you have and leave the stimulus funds for those in need.