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April 13, 2020:  Another week, another Federal Government Stimulus Package

Another week, another Federal Government Stimulus Package

Last week, the Treasury Department and the Federal Reserve Board released the details of the latest economic stimulus package – the Main Street Lending Program (MSLP).

The Treasury will use $75 billion of the $2 trillion CARES Act funds and the Federal Reserve will use $600 Billion in its emergency lending powers to purchase loans issued to small and medium sized businesses. The MSLP’s purpose is to promote liquidity for lenders who are issuing loans to small and medium sized businesses.

Although more guidance is anticipated from the Treasury and Federal Reserve Board, as well as participating banks, below is what we know so far:

There are two types of loans under MSLP.  The  Main Street New Loan Facility (“MSNLF”) covers eligible loans originated on or after April 8, 2020.  The Main Street Expanded Loan Facility (“MSELF”) covers eligible additional tranches of funding for loans that were originated before April 8, 2020.

These loans are separate from the Payroll Protection Program that was established under the federal CARES Act and the EIDL, 7(a) and other disaster loans that are available through the U.S. Small Business Administration.  However, like PPP, businesses can apply for these loans through their banks or other lending institutions, not the Small Business Administration.

These loans are unsecured just like the PPP loans.  However, there is no forgiveness provision as there is under PPP.  Like all other loan programs, it is available only to businesses which show that refinancing is required as a result of the COVID-19 pandemic.

The loan payment term is four years, with a one year deferral before the first payment is made.  The interest rate is SOFR plus between 250-400 basis points.  The minimum loan amount is $1 million.  The maximum loan amount will be $25 million for MSNLF loans and $150 million for the MSELF loans. The loan caps have other criteria that each business will need to work out with its lender.  Prepayment is permitted.

Eligible borrowers under the program are businesses with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues. Each eligible borrower must be created or organized in or under the laws of the United States.  It must have significant operations and a majority of its employees based in the United States. In addition, the business must have been in good financial standing before the crisis.  Lenders will be expected to use customary underwriting standard in evaluating loan applications.  These loans are not available to insolvent entities or a debtor in a bankruptcy proceeding.

The MSLP is available to businesses in addition to loans received under the PPP.  The program may be an option for private equity or venture capital-backed businesses that had difficulty qualifying for the PPP program because of the SBA’s “affiliation” rules relating to employee head count.

A business must choose between the MSNLF and the MSELF.  It cannot apply for both.

Lenders must not issue the loans in order for businesses to repay, reduce, or refinance existing loans or lines of credit with that lender. 

Similarly, businesses may not use the loans to repay, reduce, or refinance any outstanding loans or lines of credit.

Borrowers must also meet certain loan worthiness criteria and must follow certain executive compensation limitations, stock repurchase restrictions, and capital distribution restrictions issued by the SBA.

The start date for these loans was April 8, 2020, although it is not clear when banks will be ready to take applications, especially considering the slow roll out of PPP.


April 3, 2020:  Paycheck Protection Program Final Interim Rule

The Small Business Administration (SBA) issued final interim rules for the Paycheck Protection Program (PPP). As previously advised, all of our prior guidance was based on generally accepted interpretation of the statutes. However, these rules significantly modify prior understandings in four key areas:
 
1 – The interest rate is 1% not .5%
2 – 1099 contractor costs are not to be included in payroll costs. 1099 workers are eligible to apply for their own PPP loans, so the SBA apparently determined this would avoid double dipping
3 – Non-payroll costs, while allowable, may make up no more than 25% of the forgiven debt
4 – PPP loans can be used to refinance EIDL loans issued between January 31, 2020 and April 3, 2020
 
All banks should be able to accept loan applications starting today, Friday, April 3rd. Click here for the Paycheck Protection Program application form.
 
SBA has cautioned that additional guidance is still forthcoming on such essential issues as affiliation analysis, loan forgiveness, advance purchase for loans sold in the secondary market, and religious liberty protections.

March 30, 2020: Coronavirus Aid, Relief and Economic Security (CARES) Act 

The United States Senate passed the Coronavirus Aid, Relief and Economic Security (CARES) Act on Wednesday, March 25th and the House of Representatives passed it on March 27th. President Trump signed the bill into law that same day.
 
Click here to learn about some of the major elements of the CARES Act and how they affect you and your business

March 23, 2020:  Coronavirus Disaster Relief Lending Program

Through all of the chaos of the last week, and the damage it is already doing to small businesses, there is some hopeful news. The U.S. Small Business Administration (SBA) has announced its Coronavirus (COVID-19) Disaster Relief Lending program. This newly established program will be eligible to small businesses and nonprofits affected by the coronavirus pandemic and provide access to the SBA’s Economic Injury Disaster Loans.
 
Currently, New York small business owners are eligible to apply for an Economic Injury Disaster Loan. Businesses in other states are also eligible. Feel free to check with us if you have business operations outside New York, or go to https://disasterloan.sba.gov/ela/Declarations.
 
To qualify for an Economic Injury Disaster Loan, a business must have a physical presence in New York or one of the other disaster declared states or counties. Post Office boxes or other mailing drop offs do not qualify as a physical presence. Additionally, the business must have sustained an identifiable actual economic injury and must be without any other sources of credit.
 
The SBA has stated that loan amounts will be up to $2 million with an interest rate of 3.75% for small businesses and 2.75% for eligible non-profits. In order to keep repayment terms affordable, the loans can be up to a maximum of 30 years. Nevertheless, specific loans will be negotiated on a case-by-case basis and will depend on various factors, including the extent of the economic injury actually sustained by the business. More detailed information is available at: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
 
In addition, as more fully discussed in our last client bulletin, Congress has passed “The Families First Coronavirus Response Act.” Highlights of the Act include tax credits for small businesses that will allow them to fund paid leave for employees. Eligible companies (under 500 employees) that give employees 80 hours (or 2 weeks) of fully paid leave to full-time employees (pro-rata rules would apply to part-time employees) as a result of corona virus related business closures will receive refundable dollar-for-dollar tax credits for wages paid for sick, and family medical leave as well as payroll tax credits. Qualifying small businesses may request advance tax credits from the government in the form of direct subsidies rather than wait to get a tax credit.
 
Additional measures include: (a) unemployment benefits are extended from 26 weeks to 52 weeks for states that experience an increase of 10% or more in their unemployment rate over the previous year, and (b) extension of the income tax deadline from April 15 to July 15.
 
The NYC Small Business Continuity Fund is making interest free loans available to businesses in the five boroughs that can show at least a 25% decrease in revenue as a result of the Covid-19 outbreak. To be eligible, companies must employ no more than 99 employees, be able to demonstrate an ability to repay the loan and have no outstanding tax liens or legal judgments. For businesses with less than 5 employees, NYC is offering a grant to cover 40% of payroll costs for two months to help these small businesses and non-profits retain employees.
 
Online applications can be found at: https://www1.nyc.gov/site/sbs/businesses/covid19-business-financial-assistance.page.

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