Your Complete Glossary of Financial Terms Related to COVID-19

Some of the financial terms flying around in the wake of the recently approved Coronavirus Aid, Relief and Economic Security (CARES) Act may be confusing. We have broken down some of the key components and how they relate to the COVID-19 pandemic.

Deferred interest

What it means: Deferred interest is when interest charges on a loan or a line of credit are deferred or delayed for a specific period of time. The interest will usually accrue, or continue to grow, during such a deferral period.

How it relates to COVID-19: Many major credit card companies are allowing consumers to defer interest on their March and April payments due to the coronavirus. Also, as part of the Coronavirus Aid, Relief and Economic Security Act (CARES), lenders must stop collecting payments for federal student loans through Sept. 30. Interest will then be deferred throughout these six months and will not continue to accrue. [Freedom Federal Credit Union is allowing our members to defer interest up to 90 days on Anything Loans and are working with members on an individual basis as needed.]

Forbearance

What it means: Forbearance is the delaying of a payment on a loan, such as a mortgage or auto loan. Interest generally continues to accrue. Any missed payments are either moved to the end of the loan’s term or are collected when the period of forbearance is over.

How it relates to COVID-19: The Federal Housing Finance Agency offered payment forbearance to homeowners affected by COVID-19, allowing them to suspend mortgage payments for up to 12 months. These loans, funded by lenders Freddie Mac and Fannie Mae, account for 66 percent of all home loans in the country. Many private lenders are offering homeowners forbearance at this time as well. Some state governments have also instructed all mortgage lenders in their states to offer forbearance for three months. [At this time, Freedom Federal Credit Union is offering payment forbearance on Anything Loans up to 90 days and are working with members on an individual basis as needed.]

Freelancers

What it means: Freelancers are self-employed workers who sell their work or services by the hour or by the job.

How it relates to COVID-19: Under the CARES Act, freelancers are eligible for unemployment insurance.

Furlough

What it means: A “furloughed” worker is someone who is “out on furlough” – or temporarily laid off without pay.

How it relates to COVID-19: Millions of workers are now on furlough as companies temporarily shut down for complying with social distancing mandates, statewide orders to “shelter in place,” or due to a lack of business during the pandemic. Furloughed workers are eligible for unemployment insurance.

Gig workers

What it means: Similar to freelancers, a gig worker, or independent contractor, enters into a formal agreement with a company to be on-call when the company needs to provide service to its clients, such as rideshare drivers working for Lyft or Uber.

How it relates to COVID-19: Under the Coronavirus Aid, Relief and Economic Security Act (CARES), gig workers are eligible for unemployment insurance.

Stock buyback

What it means: Also known as a share repurchase, a stock buyback refers to a company’s reacquisition of its own stock. Stock buybacks are common when stocks are falling as the company will use its cash reserves to buy outstanding shares for reducing the number of available shares on the market.

How it relates to COVID-19: The CARES Act has prohibited stock buybacks for any individual while they are receiving government funds and for a full year for companies receiving federal loans at this time.

Unemployment insurance

What it means: Unemployment insurance offers laid-off workers partial compensation while they are seeking a new job. Eligible candidates must have been laid off through no fault of their own and be actively seeking a new position or undergoing job training. Weekly benefits are determined by each state, generally capping at 60 percent of the worker’s former income.

How it relates to COVID-19: With millions of workers temporarily or permanently out of a job, unemployment benefits have been greatly expanded. Restrictions and qualifications have been loosened and an additional weekly $600 will be added to most checks for up to four months.

Your Turn: Have you learned any new financial words since the coronavirus outbreak? Tell us about it on Facebook, LinkedIn,Twitter, or Instagram.

Paycheck Protection Program

The Paycheck Protection Program (PPP) is an important part of the historic Coronavirus Aid, Relief and Economic Security (CARES) Act designed to help small businesses continue meeting payroll and other expenses during these trying times.

Here’s all you need to know about the Paycheck Protection Program.

What does the PPP offer small businesses?

The provision creates a new category of unsecured loans guaranteed by the Small Business Association (SBA). The loans do not require a personal guarantee and are available to many businesses that were previously not eligible for an SBA loan. The loans may be entirely or partially forgiven.

Which kinds of businesses are eligible for a loan?

Traditional SBA loans are only eligible for business entities designed to turn a profit. The company’s place of business must be located in the United States, and be primarily operated in the United States.

The Paycheck Protection Program has expanded to include all nonprofit organizations, veterans organizations and Tribal business concerns.

Does the business need to be a specific size to be eligible for the PPP?

To be eligible for a loan under the Paycheck Protection Program, a business must have no more than 500 employees, including full-time, part-time and temporary workers. This rule accounts for the business applying for a loan, as well as any affiliated businesses or entities, including for profit and nonprofit, as well as domestic and foreign businesses.

What is the maximum loan amount a business can apply for under the Paycheck Protection Program?

The maximum loan amount available under the PPP is generally the lesser of $10 million, or 2.5 times the average monthly payroll costs incurred during the one-year period before the date of the loan. Payroll costs include all salaries, wages, commissions and cash tips; parental, family, medical or sick leave; severance pay; payments required for the provisions of group health care benefits, including insurance premiums; payment of any retirement benefit; and payment of state or local tax assessed on the compensation of employees.

How may the loans be used?

The loans from the Paycheck Protection Program can be used from Feb. 15, 2020, to June 30, 2020 for any of the following expenses:

Payroll costs
Costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave
Insurance premiums
Employee salaries, commissions or similar compensations
Payments of interest (but not principal) on any mortgage obligation
Rent
Utilities
Interest on any other debt obligations that were incurred before Feb. 15, 2020

Will all loans that are part of the Paycheck Protection Program be forgiven?

A PPP loan is eligible for forgiveness in an amount equal to the sum of the following costs incurred during the 8-week period beginning on the date of origination of the loan: payroll costs; any payment of interest on any mortgage obligation that was incurred before Feb. 15, 2020; any payment on any rent obligation under a lease agreement in effect before Feb. 15, 2020; and payment for electricity, gas, water, transportation, telephone or internet service, which began before Feb. 15, 2020.

The loan forgiveness amount will be prorated down if the average monthly number of full-time employees during this 8-week period is less than the average monthly number of full-time equivalent employees. The forgiveness amount will also be reduced if there is a 25% (or greater) reduction in salary for any employee during this 8-week period.

Can a small business take out a loan under the Paycheck Protection Program and still be eligible for other relief under the CARES Act?

Taking a loan under the PPP can make an employer ineligible for some other relief under the CARES Act. For example, the employer will not be eligible for payroll tax relief if they apply for a loan under the Paycheck Protection Program.

Freedom has made the Paycheck Protection Program available to its current Business Banking members. Business membership must have been established on or before February 15, 2020. Visit freedomfcu.org/business/emergency-relief-assistance/ for more details.

Your Turn: Are you a small business owner who has applied for a loan under the Paycheck Protection Program? Tell us about it on Facebook, LinkedIn,Twitter, or Instagram.

Should I Take My Money Out of My Credit Union?

Q: With all the economic uncertainty now, I’m wondering if it’s safe to keep my money in my Freedom FCU accounts. Should I be withdrawing my funds to keep them safe?

COVID-19 has pummeled the economy in an unprecedented way, and financial experts say the economic fallout of the pandemic is just beginning. But that doesn’t mean you need to start hoarding your money under your mattress.

The economic picture in the country is grim. Anyone following the stock market knows it’s been on a wild ride since the novel coronavirus reached American shores. In just over a month, the market dropped 10,000 points and was subject to its worst day since 1987. And that’s just the stock market. Small businesses are gasping for relief as they struggle to turn a profit and meet payroll in a nearly comatose economy.

Laid-off and furloughed workers are stressing over paying their bills and covering their most basic needs as they wonder when, and if, they’ll be back to work. The health care system is overtaxed and underfunded as it races to combat the pandemic and keep up with the overwhelming demand for medical equipment and supplies.

With all that, though, you don’t need to worry about the money you have at Freedom FCU. The country may be battling a raging pandemic and the economy might be barely limping along, but neither of these factors affect the security of your funds at Freedom FCU.

As always, Freedom FCU is federally insured up to $250,000 by the National Credit Union Administration. This means your money is protected here no matter what’s happening on Wall Street or to the global economy. There’s no need to withdraw the money you keep in your Freedom FCU accounts.

The economy might be unstable right now and the immediate future of the country still unknown, but there’s one thing you can count on: Your money is secure at Freedom FCU.