As We Remember — Memorial Day 2023
{8 minutes to read} This month, the nation of America pauses for a day, Memorial Day, to remember the men and women who “traded” their lives for the welfare of our country & residents. Some died on the battlefield, while others succumbed to illness because of what they experienced on the battlefield. One lasting effect is mental illness.
A few years ago, I was a member of the audience at a military workshop, where the words from one of the speakers echoed in my mind for days. He said, “We lost more to suicide than on the battlefield.” My civilian mind could not begin to fathom the accuracy of that statement.
Ironically, this month is designated as National Mental Health Month. Mental illness is an unfortunate human condition, which plagues the lives of many military personnel – and their loved ones.
According to www.youth.gov, “Mental Health Month was established in 1949 to increase awareness of the importance of mental health and wellness in Americans’ lives, and to celebrate recovery from mental illness. Mental health is essential for a person’s overall health.”
Apparently, the awareness of mental illness was “established” over seventy years ago, yet it is in recent years that it has become a matter of importance in most industries. The recent pandemic allowed us to remove the mask from mental illness and let it be part of our day-to-day conversations.
This Memorial Day, let us honor and salute the courageous men and women who sacrificed their well-being for the better good. Enough said.
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In this article, I will discuss the Covid-19 Pandemic Relief, its intent, and the law of unintended consequences.
In the spirit of goodwill, the federal and state governments came to the aid of individuals, families, businesses, etc., during this period of crisis. Loans, grants, stimulus, credits, etc., were accessible to us from various resources; though some among us were more privy to these reliefs than others for one reason or another; yet most of us got something. Some of these reliefs were unforgiven loans — administered via Small Business Administration (SBA). As the impact of the pandemic became more quantifiable, SBA attempts to get more monetary relief into the hands of those businesses that were most impacted by the pandemic, apparently made less stringent some of the criteria to be approved for the loan. As a result, some small businesses obtained large dollar amount loans without adequate due diligence regarding how they planned to repay the loan.
So how does the law of unintended consequences apply here?
First, here is a brief definition from Wikipedia.com: “Unintended consequences are outcomes of a purposeful action that are not intended or foreseen.”
Here, the government’s intention was good, extending loans to businesses in a time of unprecedented crisis, and gracefully built in a deferred payment option, such abundant grace. The focus here will be the loans that are due to be paid back, i.e., not eligible for forgiveness. One is the COVID-19 Economic Injury Disaster Loan (EIDL) program, which deferred the payment period for up to 24 months — based on the year the loan was approved. The SBA describes these loan terms as very affordable.
In my opinion, it is unlikely that the government would have foreseen how many of these businesses would not get back on a solid footing after the grace period ended and are now struggling to repay these very affordable loans. Many businesses took advantage of the extended grace period — who wouldn’t? As a result, they now have the current loan payments along with the accumulated past-due payments to repay.
Let’s use an example to demonstrate the above. Company A, a for-profit entity, was approved for a 30-year $1M loan on October 1, 2020, with an interest rate of 3.75% and a 24-month deferred period. At the end of the deferred period, the accumulated past interest amount was $75,000; this was in addition to the current monthly payment, which is approximately $4,635.
If a business has not been using the funds from the loan towards income-producing activities, the loan cost will be an added unintended expense to the business. These businesses likely used the funds to cover day-to-day operating expenses or have kept the unused funds sitting in their bank accounts, bearing little or no interest.
So what can these companies do to manage or mitigate the expenses of the loan?
While there is not much to be done if the business is not profitable and the funds have already been used up for operating expenses. However, for those with funds remaining from the loan, there are ways to leverage the expense. One such option to consider is moving the unused funds into interest-bearing accounts like short-term CDs or preferred savings accounts. These bank products are FDIC insured and hinged on the Federal Reserve interest rate — which is currently over 5%, at the time this article was written. Among the banks that offer non-brokerage high-interest accounts (4% and higher) are Bank of America (via a relationship with its investment company Merrill Lynch) and JPMorgan Chase. This means you could be earning 4-5% interest and paying back 3.75%. This makes good sense to me. What do you think?
While this article is more tailored to business owners, individuals can learn something here, too. You can consider reallocating the funds sitting in your regular checking and savings account to better interest-bearing accounts. Another option to consider is short-term Treasury Bills (T-bills). There is no state or local tax on this product, and it is not FDIC insured. That being said, a financial advisor is a valuable resource to guide you to other ways to leverage the cost of certain financial obligations.
In summary, none of us have the gift to see and know exactly what will happen in the future. At times, we make our decisions based on well tested scenarios, yet once implemented and the wheels are in motion, things happen that were unplanned, unintended consequences.
The key is what we do next —
It is also true that some of us make decisions without doing any type of due diligence as to what the cost is. Unfortunately, the business owner has a personal liability on the EIDL over a certain dollar amount.
In closing, notwithstanding the fact that we are faced with unintended consequences when a decision is made, there are steps we can take to mitigate the negative impact of those consequences. We have a plethora of scriptural wisdom to guide us. Here is one we can consider when making certain decisions — if there is a “ desire to build – first sit down and count the cost, whether he has enough to complete it.”
I hope you find this information informative and relevant.
Please reach out if you have any questions.
Enjoy the warm weather, and thank you for reading.
With gratitude,
Nadine
Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com
The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.