COVID-19 has been declared a worldwide pandemic by WHO and the novel coronavirus has inflicted economic damage to nearly every business across the United States.

This is the first in our series of educational posts and resources for the ARM industry to tide over this pandemic. Sign up here to keep yourself updated.

To maintain financial stability for small businesses, the federal government has been quick to respond by offering forgivable economic assistance in the order of nearly $350 billion. Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on March 27, 2020, introduces the Paycheck Protection Program (PPP) and strengthens Economic Injury Disaster Loan Program (EIDL).

Photo by Mike Petrucci on Unsplash

What is the Paycheck Protection Program (PPP) and how does it help the ARM and Collections industry?

Debt collection agencies and businesses operating in the ARM sector are also impacted in their ability to effectively collect due to widespread shutdowns and shelter-in-place orders. However, debt collectors should take advantage of PPP to keep the business running and save jobs.

Any debt collection agency which has less than 500 total agents and employees will be eligible to get forgivable loans from SBA lenders till 30th June. However, due to likely oversubscription, it is advisable to apply as early as possible. Application starts today – 3rd April 2020. Lending is capped at the lesser of $10 million or 2.5 times the monthly annual payroll cost for the one-year period prior to the loan. Salaries are capped at $100,000 for an individual employee.

PPP allows debt collection agencies to hire new or rehire already laid off employees, by June 30, 2020 (while still qualifying under the headcount requirements) to be eligible for forgivable loans.

Loans under PPP will allow you to stay afloat for the next 2 months by continuing to pay your agents/employees and cover certain overhead costs such as:

• Group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
• Payments of interest on any debt obligations that were incurred before Feb 15, 2020 or any mortgage obligation
• Rent and Utilities  

In order for the loan to be fully forgiven, an agency must maintain headcount through  and not reduce employees’ pay beyond 25 percent of their 2019 compensation. Ease of obtaining loans may still depend on the ownership percentage between investors and promoters, control provisions and other factors.

We strongly suggest debt collection agencies and our partners in the ARM industry to consider applying for economic assistance under PPP after consulting with appropriate legal and tax advisors.

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